AUSTRALIA’S GAIN.

Waikato Times, Volume 112, Issue 18776, 26 October 1932, Page 10

AUSTRALIA’S GAIN.

£1,137,600 ON TERM. THE EXCHANGE POSITION. ABUNDANT FUNDS. SYDNEY, Oct. 17. An annual saving, in interest of £227,500, and a total saving of £l,137,500 over the five-year term, will probably accrue from the conversion of the £13,000,000 loan. On the £13,000,000 loan the New South Wales Government has been paying interest at the rate of 5| per oent. per annum. That has involved a charge of £747,500 in Interest alone, in addition to which there has been in recent months an additional obligation of approximately 25 per cent, on the interest bill in the form of exchange on remittances from Australia to London. Leaving out of account the exchange charge, which is not exactly a fixed due, but which appears likely to remain a significant factor for some time to come, the conversion of the maturing loan into a five years' issue at 3 4 per cent, will require £ 155,000 per annum only. The saving in Interest on the nominal basis will amount to £292,500 per annum. At the “effective” rate of interest, however —that is, taking into consideration the fact that the investor will receive, at the end of five years £IOO for each £97 10s invested, the net charge will reflect a saving estimated at 13 per cent., without reckoning the cost to the Govennent of exchange on transfers of interest from the Commonwealth to London. On that basis of calculation, the saving over the lustrum would approximate £1,137,500. The Borrower’s Advantage. In the terms which are indicated in the cable message, the conversion, if carried through successfully, must prove distinctly advantageous for the borrower.

It Is known that there Is abundance of funds In London available for employment In Empire channels, and it Is anticipated that from that condition the loan of the New South Wales Government, renewal of which is being effected through the Commonwealth Loan Council, will be renewable on better conditions than those which governed the expiring securities. Opinion has been divided on the point whether the borrowing authority should make the conversion issue for a long period or a short one. It appears that the advisers to the Government have urged the shortterm alternative, holding, apparently, that conditions in the live years will make for possibly more favourable conditions when It becomes again necessary to renew. ' One section has suggested a policy of the “bird in the hand,” urging that it would be prudent to seize the occasion which appeared promising for successful conversion into longcurrency securities, even at a relative sacrifice of a fraction In interest. Optional Redemptions. Australian Governments have loans outstanding which aggregate approximately £60,000,000, over which the borrowers—mostly live States—'have the right to redeem at any time now up to, In the case of the longest-dated of the securities involved, the year 1940. If the Governments exercised their option and obtained, for conversion issues for the whole of that amount, terms on the basis of the effective cut of 12 per cent, indicated for the £13,000,000 New South Wales loan, I the saving would aproximate £1,050,- , 000 per annum.