The Timaru Herald. MONDAY, SEPTEMBER 21, 1885.

Timaru Herald, Volume XLII, Issue 3426, 21 September 1885, Page 2

The Timaru Herald. MONDAY, SEPTEMBER 21, 1885.

Two of the West Coast Railway delegates have returned to the colony. They failed m their mission, but they have come back impressed with the magnitude of the task which they undertook, and a good deal wiser as to the way m which the financial world of London lives and moves and has its being. The gentlemen m question, Messrs Dobson and Fell, will prepare an official report for presentation to the promoters, but, m the meantime, Mr Dobson has communicated to the Christchurch papers some interesting details respecting the experiences of himself aud his colleagues. To use his words, " the project was the biggest thing that ever came from the Australian colonies ;" and the delegates themselves had no idea of the size of the task they had undertaken. People who imagined that directly the New Zealand gentlemen made their appearance they would at once be besieged by British capitalists all eager to invest their money m the undertaking were, it appears, wofully mistaken. In the first place, an office was found to be necessary, and the delegates very wisely took one m the same building as the AgentGeneral's office, and here at least one of them had to be m attendance every day from 11 to 3. They had plenty of visitors. Every man who had been m the colony, or had had anything to do with the colony.called on them, generally to offer his support by taking shares m the Company, or getting rid of them among his friends. Needless to say, however, this would not provide them with the necessary four millions of money. They had to wait until bigger fish tban these rose at the bait. For two months all financial operations were at a standstill owing to the Russian war scare, and the delegates were unable to do anything. Through the good offices of the Agent-General and Sir Penrose Julyan, they were however, introduced to various people of high standing as engineers and financiers and finally affairs began to assume a concrete shape. The way to tloat an undertaking of this kind, it appears, is to get a well-known engineer to contract to do the work for a certain sum, while the engineer's " backers " undertake the very important function of finding the money. The engineer, therefore, must be a man enjoying the confidence of some leading financiers, who, on the strength of his recommendation as to the merits of the scheme, will back him up with their names and credit. Even these gentlemen, technically known as " the underwriters," do not themselves provide the money. That, of course, eventually comes from the British public, but the underwriters undertake that the money shall be found, and do this by floating a company and issuing debentures. It is hardly to bo supposed that these powerful and enterprising people will lend their names to any kind of undertaking without previously seeing themselves well secured, or that they ure prepared to do their work for nothing. When tho London gentlemen came to examine into the merits of the West Coast Railway scheme, they said tho land grants were all very well, but they wanted some security for payment of interest to the shareholders and de-benture-holders. Hence tho demand for tho Government guarantee of 21 per cent interest over nnd above the working expenses of the railway. They very Bhrewdly remarked that if the railway yielded a net profit of 2^ per cent, the Government wonld have nothing to pay, and if it was not going to yield that amount, it was not worth the wbilo of the syndicate to undertake it. As we remarked at tho time, they were wide enough awake to apply a very practical touclißtono to ascertain the real prospects of tho railway m the eyt'B of tho people on the spot. Nobody here believes that the railway will yield ft vet profit of 2j per cent for many

years to come, and we can hardly blame the London financiers if they fiiil to exhibit more faith m the success of the undertaking tban we ourselves are inclined tO 6DOW. Concerning the now historic Mr Meiggß, the delegates say that they heard nothing regarding that gentleman m London that tended to bis discredit. They learned that he had, with his brother, executed works m Chili aud Peru to the value of thirty millions, both men acquiring wealth by the enterprise. The brother was ruined by the Peruvian war, but Mr J. S. Meiggs, with whom the delegates had to deal, invested his money m England, and, we are told, " enjoys the highest consideration m the financial world." He was, at the time of their visit, carrying out large contracts m Costa Rica and the Argentine Republic, and being a financier as well as an engineer, he had consolidated the Costa Rica and public debt, and raised large loans for the Philadelphian Waterworks. Finally "he lived like a man of substantial wealth, with a large bouse m South Kensington, and a big office m Broad street, and the delegates found him au able aud courteous business man." As to the way m which the cost of the project mounted up to such an alrming figure, it is very easily explained. Sir Julius Yogel, it will be remembered, declared m the House that the Meiggs estimate of the cost very closely approximated the New Zealand estimate. As a matter of fact, however, we learn that Mr Meiggs took the latter and added ten per cent to it for " contractor's risk and profit," although of course the delegates' estimate included an ample sura for cost of engineering, Ac. • This raised the capital required from £2,750,000, as estimated by the delegates, to £3,025,000. Then when the project m this shape was laid before the underwriters, these gentlemen set down £50,000 for " expenses m floating aud administering the Company;" £400,000 for " interest during construction," and lastly their own especial item of £385,000 for " underwriting." This last named sum, about which there was so much animadversion m the House, ia to cover the margin between the nominal price of the shares and debentures and the price at which they are taken up by the public. It is, m fact, a sort of lucky bag, out of which the underwriters get their speculative profit. If the scheme goes off well with the public, their profit will be proportionately large ; i£ it hangs fire, their profit will be smaller, or may even be converted into a loss, although, with the precautions that are taken, it must be very seldom that the latter contingency comes to pass. Thus it was that tho cost swelled up from £2,750,000, as estimated by the delegates and Public Works authorities m New Zealand, to £3,860,000 when it left the hands of the underwriters. Mr Dobson explains that if the Government wanted to borrow the money for making the line all those charges for floating and underwriting would not be incurred. In the next breath, however, he innocently remarks that he does not see what is to prevent this line from paying '2^ per cent because the average of New Zealaud railways was 3, and Canterbury railways used to pay i. The absurdity of comparing the two is so obvious that the statement can only provoke a 6mile. In the first place the railways m existence have to pay interest merely on the actual cost of construction, not on that sum plus 30 or -i 0 per cent for " contractors' risks," brokers' commissions, cost of underwriting, etc. Secondly they are for the most part of fairly easy construction, while the East and West Coast Railway would be nearly all of the heaviest kind of work, and the capital cost per mile would be proportionately high. Thirdly the constructed lines open up country for settlement, while there 13 not sufficient habitable land alongside the West Coast Railway to provide the area granted by way of endowment to the proposed Company. Anybody who can look these facts m the face and can then conscientiously express his belief that if the Meiggs contract had been entered into the country would not have had to pay the 2j per cent interest, and a considerable portion of the working expenses as well, must indeed be very far gone m the railway madness which is flourishing m such a curious manner m certain circles just now. There is one great lesson taught both by the visit of the delegates, and also by our experience with regard to the Wellington and Manawatu Railway. It is this, that if a railway is worth making nt all the cheapest and best way is for the Government to do the work. Another fact, which must have impressed itself on the minds of the promoters of the East and West Coast Railway, is that it is no use our trying to impress hardheaded financial men m London with more confidence |m a particular undertaking than we ourselves possess.