PUBLIC RECORD OFFICE
Reference :-
C.O. 882
6
PUBLIC RECORD OFFICE, LONDON | ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-
COPYRIGHT PHOTOGRAPH—NOT TO
280
to take up under their underwriting obligations, and which they have not yet succeeded in passing on to the investing public.
7. As a consequence, and under pressure from the Stock Exchange, the issue of loans carrying a low rate of interest has almost ceased for some considerable time, and various Colonial Governments and Municipal Bodies have been financing them- selves by the issue privately of short-dated Debentures bearing 4 per cent. interest or a shade over, which the financial houses, insurance societies, &c., are willing to take and hold, as they do not involve a permanent lock up of capital, and such Debentures can usually be sold in case of need, or be borrowed against on terms which will not show a loss to the holder.
8. It has appeared to us, however, that the course of action which is indicated in the preceding paragraph is not one which it is desirable to adopt. It is obviously little more than a staving off of the evil day and speculating on the probability that the money and stock markets will be in an easier condition a few years hence than they are at present. This we ourselves believe will be the case, but if it should happen that an unsettled state of affairs should exist when the short-dated securities to which I have referred mature, there can be no question that the Governments and Municipalities which have issued such securities would be placed in a position of great difficulty in arranging terms on which to meet their obligations.
9. In these circumstances it has appeared to us that in such cases as it may not be possible to make an issue on reasonable terms of Inscribed Stock bearing a low rate of interest, the best course to take is to make an issue of short-dated Debentures carrying such a rate of interest as will secure the placing of the loan, and to make the Debentures convertible into Inscribed Stock at the option of the holders of the Debentures and on terms which shall become less and less favourable as the Debentures run to maturity. We have, further, in such cases, arranged that the Debentures shall be subject to redemption by drawings at par, so that pressure may be brought to bear upon the holders of the Debentures to convert into Stock in order to avoid being paid off.
10. The system of issue which I have explained above we carried out in the case of a loan of £1,250,000 on behalf of the Government of Sierra Leone. This loan was issued in the shape of 10-year convertible 4 per cent. Debentures, and proved a great success. The issue was very speedily carried to a premium, and the Debentures now stand at the price of 100 to 102 ex dividend. Conversion into 34 per cent. Stock, which is now standing at the price of 98 per cent. ex dividend, has also been carried out to the extent of £585,308, and there appears to be very little doubt that before the remaining Debentures mature the greater portion of them will have been converted into Stock, and that, therefore, no difficulty will be experienced in dealing with any small amount that may remain outstanding at the end of the ten years.
11. Experience has therefore proved that the form of issue which I have described is a desirable one. It meets the immediate necessities of the Stock Exchange and the financial houses by providing them with a convenient form of security-so-called floaters-against which they can obtain advances with the least possible trouble. At the same time it enables them to offer Stock to any of their clients who as Trustees, or for any other reason, may be unable or unwilling to hold Debentures.
12. That the success in the case of Sierra Leone was not an isolated one is proved by the Government of New Zealand having followed our example and issued a loan in the shape of 4 per cent. Debentures convertible into 3 per cent. Stock, which also proved a great success, and the Agent-General for New Zealand has acknowledged to us privately the benefit which his Government had derived from following our example.
13. On the other hand, the last loan which we issued-viz., £2,000,000 for the Government of Lagos-was, in deference to the views of the Secretary of State, issued directly in the shape of 3 per cent. Stock, but with only qualified success. This has reacted on the popularity of the loan, so that the Lagos Stock has stood at a price of more than 3 per cent. below that of Sierra Leone, although on its intrinsic merits the Lagos Loan is the better security.
14. Such being the facts of the case, it appeared to us that as further legisla- tion was necessary in the case of the forthcoming Hong Kong borrowings, the better course would be to place the borrowing powers of the Colony on such a basis that we should be able, in case of necessity, to issue loans in the shape of Stock or Deben- tures as each case might require, and I would point out that in the absence of such
281
powers we may on some occasion or other find ourselves forced to issue a loan in the shape of Stock at a very considerable discount, and, therefore, on terms prejudicial to the credit of the Colony.
15. I would add that the obligation which is imposed upon us by Loan Ordin- ances of making all issues upon the best and most favourable terms that can be obtained" would appear to secure that the conditions of issue shall always be fully considered before a decision is arrived at as to whether the issue shall be in the form of Stock or Debenture.
42781
SIR,
(Confidential.)
46
No. 189.
I have, &c.,
E. E. BLAKE.
COLONIAL OFFICE to FOREIGN OFFICE. [Answered by No. 198.]
Downing Street, December 15, 1905. WITH reference to previous correspondence respecting the Canton-Kowloon Railway, I am directed by the Earl of Elgin to transmit to you, to be laid before the Secretary of State for Foreign Affairs, a copy of a despatch* from the Governor of Hong Kong on the subject.
2. With respect to the point raised in paragraph 4 of this despatch, Lord Elgin would suggest that it might be well to inform the British and Chinese Corpora- tion of the difficulty caused by the proposal to insert £2,000,000 as the amount of the Chinese loan.
3. I am to add that his Lordship concurs in the view expressed by Sir M. Nathan in paragraph 5 of the despatch.
44712
SIR,
No. 190.
I am,
&c.,
C. P. LUCAS.
CROWN AGENTS to COLONIAL OFFICE. (Received December 19, 1905.)
Whitehall Gardens, London, S.W., December 18, 1905.
Hong Kong Kowloon-Canton Railway.
I HAVE the honour to acknowledge the receipt of your letter of the 29th Novem- ber, No. 41112/1905,† transmitting to us a copy of a despatch from the Governor of Hong Kong covering Mr. J. C. Bruce's report and estimates of his survey for the British section of the proposed Kowloon-Canton Railway.
2.
We at once communicated a copy of the Governor's despatch and its enclosures
to the Consulting Engineers for their observations, and I now enclose, for the informa- of the Earl of Elgin, copies of two letters which we have received from them on the subject.
3.
We will communicate with you again as soon as we receive the Consulting Engineers' recommendations in the matter.
GENTLEMEN,
Enclosure 1 in No. 190.
I have, &c.,
E. E. BLAKE.
Sir J. WOLFb Barry and PARTNERS to CROWN AGENTS.
21, Delahay Street, Westminster, S.W., December 1, 1905. Kowloon-Canton Railway.-British Section.
We have to acknowledge the receipt of your letter of yesterday's date en- closing copy of despatch which you have received through the Colonial Office from
18883
• No. 181.
↑ No. 178.
IN