***#14
PECORD OFFICE
Peference -
LIMLA C.O.882/12
| PUBLIC PICÒRD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT MHOTOGRAPH-NOL 10]
18
(3) They should enable the Company to borrow at fair interest rate, and only such sums as may actually be required, thereby keeping interest charges to a minimum.
(4) They do not permanently add to an already sufficiently heavy debenture load at a high rate of interest and with a Sinking Fund which would have to be increased if further debentures were issued.
It will be noted that borrowing from the Bank where necessary can only be for such amounts as are certified by the Government Director, and that all proposed future expenditure on capital account has to be first submitted to and approved by the local Directors. A continuance of control over finance is thus assured. Provision is also made for an additional Government Director in London.
We discussed and, I think, generally agreed that the existence of the 500,000 Preference Shares with so high a cumulative interest rate as 8 per cent, was an adverse factor in the future financing of the undertaking. The Government have, not unfairly, criticised the Board on the cost of past finance, a criticism, it might be argued with equal fairness, which also applies to these Preference Shares. It has invariably been found a serious incubus for a developing undertaking to be saddled with Cumulative Preference Shares at a high rate of interest during its earlier years of trading. Arrears accumulate, further finance is rendered more difficult, and eventually arrears are generally extinguished, or converted into some form of deferred shares. There is, in the present case, also the fact that the Government, by their £850,000 investment in the form of Debentures put in front of their Preference Shares, may have diminished the present value of those shares. The problem therefore which presented itself to my mind was how to maintain ultimately the annual return upon, and the capital value of, the Government's shares, while removing the obstacle to further finance.
The proposed conversion of these shares into 6 per cent. Preferred Ordinary 'Shares, with participating rights up to 8 per cent., while admittedly involving some problematical sacrificing of any arrears of interest that might accumulate in the next year or two, will, on the other hand, undoubtedly bring nearer the date when the investment of this £500,000 will be worth at least par, and leave unimpaired the ultimate annual return and prospective capital appreciation. It will also make it easier at an earlier date to secure the further finance that the undertaking will un- doubtedly need as it expands, for this is the common experience of all actively managed electric power undertakings.
In other words, it is obviously to the interest of the Governments' investments in the Company that the undertaking should be brought into a position of financial stability, and with profits available to meet all charges, at the earliest possible moment. There are now many urgent reasons for arriving at some agreement on these matters as soon as possible. A number of decisions which must be taken before I can leave Malaya are held up until agreement is reached. Every day's delay will hinder that "Stimulation of consumption and effecting of all possible economy" to which His Excellency referred in his speech at Chenderoh on the 28th. To seize every opportunity of obtaining new consumers in these difficult times will mean spreading payments for equipment, &c. (which are usually paid by the consumer in cash before supply is commenced) over a period of 12 to 18 months. I have told our staff that, until this question of finance is settled, they cannot offer any such facilities. Nor are we justified in going ahead with the work of raising the crest of the Dam, which ought to be put in hand and the materials ordered at once, as the work will take several months to complete.
I should point out that the £250,000 of unissued Debenture Stock cannot be used even as security for a Bank overdraft without the consent both of Government and the Debenture Holders, for the Bank would almost certainly require a written under- taking from the Company's brokers to place these Debentures when necessary. No such undertaking could be given unless the Debenture Holders' consent to their issue were first obtained, and such consent may be much more difficult to obtain and the Debentures much more difficult to place now that the Government's £50,000 has been placed in front of these Debentures, and these steps will take time in any event. The proposals contained in these draft heads of agreement will, it is hoped, get over all these difficulties, and save a great amount of time and expense.
I do not think I need comment on the other provisions of the draft proposals. which speak for themselves.
I have endeavoured in these proposals-and in a covering letter which I have in course of draft-to meet the views expressed by Government during the three Con- ferences which have taken place. The covering letter is one in which the Government will, if they approve them, make certain suggestions as to a possible reduction both in the number of London Directors and their fees for the time being, &c.
19
Holding myself in readiness to attend for discussion on any points arising out
I have. &c.,
of the proposals submitted as requested.
ARNOLD B. GRIDLEY,
Director.
P.S-These draft heads have not been submitted to our lawyers,
Draft Heads of Agreement between the Federated Malay States Government (hereinafter referred to as “ The Government ") and the Perak River Hydro-Electric Power Company Limited (hereinafter referred to as "The Company ")."
WHEREAS the Government advanced to the Company the sum of £850,000 in January, 1930, by way of secured loan at 5 per cent. interest under an agreement dated 29th January, 1930, and are also holders of 500,000 Preference and 75,000 Ordinary Shares of £1 each of the Company.
And whereas consequent upon the severe depression in the Tin Industry and its adverse effect upon the revenue and growth of the business of the Company the Com- pany may require further moneys to carry on their business until sufficient current is being sold as will produce net receipts sufficient to enable the Company to meet all its interest and redemption liabilities.
AND WHEREAS the Government is prepared to facilitate the obtaining of further moneys by the Company on the terms and conditions hereinafter appearing
NOW IT IS HEREBY AGREED AS FOLLOWS:
1 The Government will to the extent and on the terms and conditions herein- after appearing consent to the Company obtaining by way of loan or overdraft from their Bankers such sums as the Company may need from time to time as certified by Mr. Pountney the Director nominated by the Government but which shall not exceed £250,000 in all. All moneys so obtained shall be paid into the same account as the £850,000 already advanced.
2. The Company may for the time being deposit with their Bankers a Certificate for £250,000 of unissued 7 per cent. Participating Debenture Stock as security for moneys advanced by them from time to time. When the Bank shall call in the said loan or overdraft the sum then due which shall in no event exceed £250,000 shall be discharged by the Company in the following manner :-The Government shall take up and acquire for cash an allotment of 250,000 6 per cent. Preferred Ordinary Shares of £1 each fully paid (being part of 750,000 of such Shares to be created as herein- after mentioned), or an allotment of such a number of such Shares as shall at par represent the sum payable to the Bankers as aforesaid.
3. The Company shall at their next Annual General Meeting take powers to create 750,000 6 per cent. Preferred Ordinary Shares of £1 each ranking both as to Dividend and Capital prior to the existing Ordinary Shares of the Company. As soon as such Shares have been created the Government will exchange their 500,000 Preference Shares for 500,000 of such Preferred Ordinary Shares allotted as fully paid, and such Preference Shares shall be forthwith cancelled.
4. The Government shall be entitled to such representation on the Board of Directors of the Company from time to time in London as shall be proportional to the total number of Directors and to the financial interest of the Government in the total issued and paid up Capital of the Company inclusive of all forms of Debenture Stock, Loan, or Fixed Capital.
5. The Company shall forthwith appoint two local Directors of the Company in Malaya under the provisions of Articles 113 and 114 of their Articles of Association. Such local Directors shall be resident in Perak. The first local Directors shall be the Hon. Colonel C. Rae, J.P., and Mr. R. S. Stewart, both of Ipoh. Notwithstanding any of the provisions of the said Articles 113 and 114 the local Directors shall be mutually agreed upon from time to time by the Government and the Company and shall not be changed without the like joint approval. Such Directors shall acquire qualification Shares and their remuneration shall be at the same rate as the Director nominated by the Government to the Board in London, namely at the rate of £500
per annum each.
40
7
J
No comments yet.
Private notes are available after approval.