AUCKLAND TRANSPORT LOAN

Taranaki Daily News, 12 July 1933, Page 2

AUCKLAND TRANSPORT LOAN

HOW DIFFICULTY AROSE.

TRANSFER OF DEBENTURES.

Auckland, July 4.

While the terms of the particular loan indebtedness make understandable the action of the Auckland Transport Board in paying its overseas interest in New Zealand currency, there is no doubt that the temporary financial benefit accruing to the issuing authority will 'be swamped by the detrimental effect the policy will have for years on the Dominion’s credit in London.

This is the considered opinion of pro-: minent members of the Auckland Stock Exchange, one of whom, in an interview this morning, explained the somewhat complicated nature of the tramway loan controversy. The debentures in question, or the Tramway Loan, as they are described, he said, were issued in 1920 by the Auckland City Council in payment of tramway undertaking, and they are in an entirely different category from loans issued by other New Zealand local bodies on the London Stock Exchange, and in respect of which prospectuses were published. The Tramways Company was an English company, with its head office in London, and tire debentures gave the option for the payment of interest and principal in either London or Auckland. To enable English shareholders of the Tramway Company to obtain payment in London debentures were ’ offered on the market in Auckland' by the Tramway Company, with the object of providing funds for the liquidation of its concern. Some difficulty was experienced in finding a ready market in New Zealand for these debentures. They were offered for sale through the Bank of New Zealand. After some months a large number of the debentures were unsold, and a considerable block was subscribed for by a group in London. These particular debentures were submitted for stamp duty under, the English Act, and obtained an official quotation on the London Stock Exchange. They represented about £550,000. The interest on these debentures was paid in sterling, and payment in similar currency was made also on any of the debentures purchased in New Zealand and subsequently taken to London. All the debenture-holder had to do was to notify the issuing authority, which made provision for the payment of funds in London. No other debentures shipped from New Zealand, apart from those, could be sold through the London Stock Exchange. They did not bear the English stamp duty, and they were regai'ded as “bad delivery."

The instalment of interest due in January last was paid by the Transport Board in sterling, but during March the announcement was made that the board would not pay interest in sterling on any debentures which had not received such payment in January, the effect being to prevent the transference of further debentures from New Zealand to London to enable the benefit of the inflated exchange to be obtained. This, declared line of policy apparently gave the impression that the debentures already held in England had British domicile, and therefore were entitled to be paid in sterling.

The broker added that the subsequent action of the board in paying in New Zealand currency interest on debentures -the holder-of which had the option to collect in London or in Auckland, was understandable, since it had been laid down by the Auditor and ControllerGeneral .that, according to the existing law in New Zealand, the board was not entitled to make payment in sterling.