FINANCE AND INVESTMENT
By CUSTOS AurHoucti it has been a foregone conclusion that Austplia would seize the first opportunity to deal with its 5 per cent, loans in London, the plan now announced for replacing these optional maturities by a new 3* per cent, stock is bound to bring fresh problems to a large number of British investors. Amounting in the aggregate to £94,311,567, the stocks now called for redemption this summer comprise the £68,419,293 of Commonwealth 5 per cent., 045-75, £11,717,684 Victoria 5 per cent., £7,217,819 South Australia 5 per cent., £6,357,771 West Australia 5 per cent., and £599,000 Tasmania 5 per cent. Holders of these loans who do not wish to be paid off in cash are being given the option to convert into a new Commonwealth 31 per cent. stock, 1965-69, at par, but the conversion issue is being limited to £6o,000,000. In fi other words, as much as £34,311,567 of sterling indebtedness is being repatriated by the Commonwealth authorities.
GOOD RECEPTION IN LONDON
In the market here this latest conversion operation, which is easily the largest undertaken by Australia, has- been well received. The terms are regarded as doing full justice to Australia's im- proved credit status, taking into account, of course, the current low level of interest rates, without reaching too high. After all, the British Government, whose credit must still be regarded as some- what stronger than that of the Commonwealth, .is itself only able to borrow on medium tertn at 3 per cent. The differential between this rate and Australia's new 3.+ per cent. loan with a maximum life of 24 years is surely small enough. It may prove, indeed, to be a blessing in disguise if the effect of the recent introduction of socialistic banking legislation in Australia has been to modify the terms of Australia's borrowing slightly in favour of the lender.
What is impressive about the operation now being launched is the Commonwealth's decision to pay off so large an amount as £34,311,567 out of its sterling resources. At present, it seems, Australia's sterling balances stand at about £155,000,000, so that after this operation has been carried through they will still stand at over £120,000,000, which may be usefully compared with an average pre-war figure in prosperous times of £70,000,000. Since 1938 Australian conversions in this market have amounted to £378,334,277, and have resulted in an annual interest-saving of £5,3oo,000. On any rational assumptions about the Common- wealth's interal and exteral financial position after the war the loan position in London looks strongly secured. My advice to holders of the 5 per cent, stocks now called for redemption is to convert into the new 3.1- per cent. loan which should command a small premium in the market.
CO LIRTAULDS EXPANSION
In a few sentences outlining post-war plans, Mr. Samuel Courtauld has solved the mystery of the use to which Courtaulds, Limited, would put the large liquid resources amounting to Some £4o,00o,000, which now appear in the balance-sheet. While there is no mention of any possibility of a link-up with British Celanese, which I have always regarded as unlikely, Mr. Courtauld reveals a number of projects which will call for capital on a very sub- stantial scale over the next few years. Orders have been given for a 5o per cent, increase in the size of the staple fibre factory in North Wales, a new site has been acquired near Belfast, and negotia- tions are proceeding for the purchase of other sites in West Cumber- land and near Dundee. In conjunction With Imperial Chemical Industries, Courtaulds are purchasing a site tor a tull-scale nylon spinning factory in South Wales, apart from which developments are on foot in various Empire markets and for the extended manufac- ture of chemicals.
As Mr. Courtauld reminds stockholders, it must take several years to erect, equip and start up factories of the size contemplated even after building has begun, and, like many other industrial under- takings Courtaulds are being badly hampered in their planning by an acute shortage of key administrative and technical staff. One cannot escape the impression, all the same, that a period of great expansion lies ahead which should find reflection in at least- a moderate increase in net earnings and dividends. Quoted around 55s., Courtaulds £r Ordinary units are yielding only 24 per cent. on a 71 per cent. dividend which last year was not fogy covered by net profits. This is itself a striking indication of investment confidence in the post-war outlook. As a long-term holding_ the stock is' still worth putting away,
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