The Timaru Herald THURSDAY, JUNE 3, 1926. NEW ZEALAND’S CREDIT.

Timaru Herald, Volume CXXIII, 4 June 1926, Page 8

The Timaru Herald THURSDAY, JUNE 3, 1926. NEW ZEALAND’S CREDIT.

“Appli cations poured m so fust,” the cable messages reported regarding' the' success ot the New Zealand loan, that the .subscription of six millions was largely exceeded by eleven o’clock, when the list was closed.” In other' words, in two hours the British investor offered more than six millions, though the return to the lender is only fractionally higher than the returns of several Australian issues to which the. public subscribed very little. Not unnaturally, the Government is delighted at the generous response. Had a large proportion of the loan been left m the hands of the underwriters, the critics of the Government would undoubtedly have said that the British investor had no faith m the present Administration. Apart, altogether from the gratification felt by New Zealand at the success of the loan, it is encouraging' to note that the long pea cent ages ‘‘left with the underwriters,” which has characterised recent loan issues, has been terminated, and New Zealand has the satisfaction ol realising - that the six million loan proposal issued in London this week lias conclusively shown that there is no real dearth of funds in Loudon available for investment providingthe security and return are firstclass. Late in April, last year s Now Zealand loan was quoted in London at £9ll 12s 3d per cent., net, after allowing- for accrued interest, thus giving- a return to the investor of £5 Us 9d per cent. Since then, there lias been no material change in the London money market. This being so, it was confidently anticipated that a return of £5 2s Gd offeringon the new loan, would prove uncommonly attractive to the investor. ‘‘Although the success of the New Zealand loan was generally expected,'’ says a recent cable ' message from London, “the early closing- of the list surprised even the- most optimistic. The popularity of tli© loan was evidenced hv the long queue awaiting- the opening of the Bank of England at 9 o’clock in the morning t<? obtain application forms. This was reminiscent of the pre-war boom in mining issues.” Already the new loan is ipuded ill a premium. Emm the outstanding success of the loan, compared with the cool reception accorded other oversea loan proposals, it might, he inferred that in , comparison with the Australian loan issues, New Zealand offered specially attractive terms. This is not. so, since the return from the. Now Zealand .six million loan is only a. penny or two larger than that from several Australian State loans placed on the London market this year. Three of these loans raised earlier in the year were left in the hands of the underwriters. In January, Queensland issue.! a loan of £2,500,000, and of this no less than G 8 per cent, remained in the hands of the underwriters. South Australia attempted -to raise £1,800,000 but the underwriters had to absorb G 3 per cent. As recently as March, New South Wales fried the I,on don market for a. loan of £4,000,000, but only 30 per cent, was taken up by the British investor. At the same time, it is interesting to note, the return to the lender offered by all these loans was very little below that offered by New Zealand's' highly successful effort. For the purpose' of comparison the following table may he. quoted: Return.

£ s. d. Queensland (January) ... 5 2 5 South Australia (January) . 5 2 .‘i Nett" South Wains (March) . 5 2 4 New Zealand (May) 5 2 6 As the Prime Minister said in the course of a speech at Dargaville on Wednesday : “Wo are entitled to regard what lias happened as a vote of confidence not only in the Dominion, but also in the Government. All our cards have been placed on the table. Our balance sheet has been examined, and has received the approbation of the keenest financial critics at Home. Ovor-sub.serintion of the loan in two hours spoke for itself. It was now up to all of our people to do all they could to live up to the lino reputation which New Zealand had gained. It was quito true we had our little troubles—industrial and otherwise—but with thrift, energy, and hard work on the part ol all sections of the community, the clouds would soon 101 l away. lie was firmly convinced the Dominion could look forward to even brighter days than it had experienced in the past.

Apart altogether from the political aspect of the success of the loan issue, the rush of investors is an eloquent endorsement of all that has been said about Now Zealand's high credit in London. This country's policy of “placing all the cards on the table,” as the Prime Minister puts it, not only had the effect of breaking away from the rather distressing monotony of under-subscription, hut actually caused a rush of applications; “reminiscent of pre-war issues." It may he said, in view of New Zealand’s high credit, and the good ,/landing this country retains in London, that the tennis offered were too generous, hut the fact should be

borne in'mind that the return from this year’s loan which has been so successfully floated is only a few pence heller than the Ausl nil inn loans which were partial failures, and only fls 9d. per cent, above the New Zealand loan hist year of which 85 par cent, was left with (he underwri levs. According to Ihe statement issued by (he Minister of

Finance, the proceeds of tlie new loan will he allocated as follows: Railway construction, a deli- X: tions and improvements 3,000,000 Hydro-electric power . . . 1,000,000 Telegraph extension . . . 730,000 Ollier public works . . . 1,250,000

Total £0.000,000 It is, of course, encouraging to note that the Government, proposes to.apply the proceeds of the loan to the creation of revenue-producing assets, but it is nevertheless manifestly clear that the Government must move with extreme caution, and only embark upon sound undertakings, if money, costing- £5 2s GJ per- cent, gross is to'be profitably employed in State enterprise.