AUSTRALIAN LOAN

Timaru Herald, Volume CXXXVII, Issue 19373, 23 December 1932, Page 12

AUSTRALIAN LOAN

WHY IT FAILED. The latest Australian internal 33 per cent loan for £3,000,000 was far from a public success. The total amount subscribed was £5,086.000. Of this total £2,986,000 represented subscriptions by the general public and £2,100,000 firm subscriptions lodged by trading banks. As the loan was underwritten by the Commonwealth Bank and the Australian trading banks, acting in conjunction, the balance of the £8,000,000 has been subscribed by banks. In its comments on the issue, the “Sydney Morning Herald” remarked that the want of success was due to a number of causes. First and foremost there was no driving force in the campaign for the loan. Next, there is no doubt that the rate of interest offered was too low. The market when the loan was put forth had just worked down to a 4 per cent basis, and there were indications that this had been achieved by Government support of the issues already in existence. To offer a quarter per cent less than the market after a painful struggle had got down to was, to say the least, a hazardous venture. The brokers were allowed only a brokerage of 5/- per cent on applications, against a former 10 per cent. There was no heart in their efforts.

“Lastly, the Government had made the investing public suspicious. It announced that the Treasurer reserved the right to accept any subscriptions tendered in excess of £8,000,000. The loan really then was not a loan for £8,000.000. but a loan for an unlimited amount with a minimum of £8.000.000. It is not the first time that a Commonwealth prospectus has contained this clause, but the hardened investor always regards unlimited loans as giving too much to Governments. What chance would a company which announced that it would take subscriptions for an unlimited number of shares have no finding subscribers of repute? In London experience has shown that it is best to keep to the stated amount, and in case of oversubscription to allot to subscribers pro rata. Altogether the Government should be thankful that it did not venture on a £20.000.000 issue.”