CO129-539-12 Loans for public works- military finances 26-2-1932 - 7-3-1933 — Page 83

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that conditions have become unfavourable.

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3.

With regard to the Treasurer's estimate

of a rate of 5 per cent for a local loan I would

mention that conditions in London are now favourable for

the issue of a loan and that we should expect to be

able to get a price of somewhere about 98 net for a 4

per cent Colonial Government loan or about 91 net for

a 4 per cent loan. We cannot, of course, feel confident

that these favourable conditions will continue until the

end of October when the option arises for the conversion

of the Public Works Loan 1927. Although the terms

obtainable in London might at the time of issue be more

favourable than those on which money could be raised in

the Colony, this advantage might easily be outweighed by

the exchange risk to which Hong Kong is peculiarly liable.

We presume that the Treasurer is satisfied that it will

be necessary to pay as much as 5 per cent on a local loan.

A little more than a year ago, when I was in Hong Kong,

there appeared to be a plethora of money deposited in the

banks seeking investment and the indications were that the

Government could then have borrowed very cheaply, but the

conditions may have changed in the meantime.

4.

With regard to the Treasurer's proposal to leave

the sinking fund of the loan invested, we consider that it

would be wrong in principle not to use this fund in reduction

of the amount of fresh borrowing required for the repayment

of the loan. The securities in the fund could be realised

now at good prices, and in the event of prices being

unfavourable at the time of repayment of the loan, the

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