B.—ll

31

The bills in question were presented to us on the 20th November, and were duly accepted by us. They will accordingly mature on the 21st February next. We have, &c, P. G. Julyan, The Hon. the Colonial Treasurer, Wellington. F. D. Bell.

No. 70. The Loan Agents to the Colonial Treasurer. Sic, — 7, Westminster Chambers, London, S.W., Ist December, 1884. We have the honour to acknowledge receipt of your letter of the 11th October, No. 6, transmitting an Order in Council authorising the raising of £1,000,000, under the New Zealand Loan Act of 1882, being the third and last instalment of the loan, and appointing us Agents for that purpose ; also transmitting a separate Order in Council empowering us to raise £1,000,000 by the issue of short-dated debentures pending the raising of the loan. We have, &c, P. G. Julyan, The Hon. the Colonial Treasurer, Wellington. F. D. Bell.

No. 71. The Loan and Stock Agents to the Colonial Teeasueer. Sir, — 7, Westminster Chambers, London, S.W., Ist December, 1884. We have the honour to acknowledge the receipt of your letter of the 11th October last, forwarding copy of the Financial Statement; referring to certain telegrams which had passed between us relative to loans and conversions; and concurring in our recommendation that the new loan, together with the final instalment of the last loan, should be brought out as early as possible after the new year, leaving the conversion of consols to be subsequently dealt with. We have already, in our letter of the 30th October, No. 475, explained why we think that conversion should be deferred, and why we consider the creation of 3J-per-cent. stock inadvisable ; and we see no reason to alter the views we then expressed. We fully recognize the importance of the operation, and so soon as we see a fair prospect of carrying it out successfully, we will lose no time in submitting to you by telegraph the terms we think should be offered to the present bondholders. We are not unmindful of the difficulties we shall have to contend with. The nett price of the stock is now slightly below par, with an over-supplied market, and but few transactions taking place, as will be evident on reference to the official share lists of the Stock Exchange, while 5-per-cent, consols may be taken at 105f, but offering in quantities insufficient to make a market. Irrespective of our obligations to the Bank of England with regard to the stock they have already taken from us, there will be the fresh issue of two and a-half millions in January further to flood the market, as well as the knowledge that yet another million is authorized to be raised, and may be forthcoming ere long, for the construction of the North Island Trunk Bailway. These obstacles combined, cannot fail very considerably to lessen the price of the next issue, and in all probability will, for some time, have the effect of widening the margin of price which now exists in the market between stock and debentures, to the disadvantage of conversion. At all events, we are strongly inclined to think that nothing approaching the favourable terms you name would induce the holders of consols, to any appreciable extent and with no external pressure beyond the risk of having their bonds drawn for payment, to exchange their securities for 4-per-cent, stock, unless in the meantime the market should undergo some great revolution. We are not sure that we clearly understand your reference to the " market equivalent " and the " actuarial equivalent." You state that in a conversion of consols we " should offer something more than the market equivalent, but nothing approaching the actuarial equivalent;" and, again, that we "cannot give anything like the actuarial equivalent;" and you add that "if we gave 104 to 106 of 4 per cent, for £100 of 5 per cent., we should give, on the market basis, very good terms." From this we are led to suppose that you thought these figures (104 to 106) were much less than the actuarial equivalent. But, according to the Actuaries' table, lately sent to you by the AgentGeneral, supposing the relative market prices to be what they were on the day the table was compiled—namely, 102 for inscribed stock, and 107 for consols—the actuaries only make the equivalent £104 18s. of 4-per-cent. inscribed stock for £100 consols. Of course you will understand that the calculations are theirs and not ours, and that we do not make ourselves responsible for them. Your estimate was evidently based on an exceptional and inflated state of the market for inscribed stocks, produced by the acts of the Chancellor of the Exchequer, but which under no circumstances could be of an enduring character; and, in the case of New Zealand, an excessive supply of stock, present and prospective, has already more than neutralized the rise thus momentarily produced. It will be well, to a certain extent, to regard any proposed conversion scheme from the standpoint of the bondholder, bearing in mind that he cannot be forced into conversion; that there is a strong tendency not to disturb investments long held, and that the majority of debenture-holders find nothing sufficiently attractive in inscribed stock to compensate for a reduction of income such as an exchange, profitable to the borrower, generally involves. A preference for stock will no doubt in many cases influence new purchasers, but it is quite a different matter when you invite the old investor in a 5-per-cent. security, of possibly long currency,