G.R.
لا
143
3 We agree with your view that a sinking fund is preferable to a drawing loan, for the additional reason that drawings depress the popularity of a stock, and there fore its issue price. Generally speaking, the investor in a long term stock likes to know that he will hold it for a definite period.
4 As regards the period over which the redemption contribution should be calculated: You propose that there should be a 1% statutory sinking fund, leaving over the question of a supplementary sinking fund for review in about five years, when financial conditions are easier; or as an alternative, that the Government' should set aside each year the same sum as would be required for a 1% sinking fund, but should use the money to make purchases of the loan in the market, if this is necessary. We feel that, if
Hong Kong finances are likely to be able to stand a shorter redemption period, these proposals may err in making the period too long.
should normally be
This is, I stocks issued on
The period of a sinking fund the maximum life of the security. understand, the rule with colonial the London market. We should have thought it right for you to ask ong Kong whether the increased sinking fund charge required to complete redemption within the maximum life of the stock would not be to its advantage by enabling it to enhance the issue terms and thus improve the colony's credit, which, having regard to the proposed rate of borrowing (i.e. 3%), appears to be on the low side for a Colonial Government. Even if the fund could be invested at 31% (the rate of interest on the loan itself) the proposed 1% sinking fund would not be complete before 44 years, i.e. would be less than half-full when the stock was finally due for redemption. We would suggest that the Govenor be asked whether the advantages of an increased charge would not thus outweigh the disadvantages.
/5.....