FINANCE AND INVESTMENT
By CUSTOS
IMPORTANT questions of principle affecting the whole investment community are raised in the terms of the capital repayment scheme proposed by the directors of the Scottish Motor Traction Company. Having disposed of its road transport interests by means of a voluntary sale to the Government, this company is now taking steps to reduce its capital by a substantial sum. The main pro- posal is to make a scrip distribution of practically the whole of the British Transport stock received as compensation, which will result in Ordinary stockholders receiving the equivalent of about 75s. a unit, but the most contentious part of the scheme is that which provides for repaying the £i million of 6f per cent. Preference stock at par. In the days of ultra-cheap money many investors paid over 3os. for the Li Preference units and before the question of a sale of the assets arose the market price usually fluctuated between 25s. and 3os. It is obvious that for a great number of the Preference stockholders the proposed repayment at par must bring a material financial loss. The question now being debated in the City is whether, first, in equity and, second, in strict law the Scottish Motor Traction board are adopting the correct policy.
EQUITY AND LEGAL RIGHTS On the grounds of equity City opinion is practically unanimous that to repay a high-rated Preference stock at par in the conditions which have produced the present position of the company is grossly unfair. There are many precedents for dealing with such Prefer- ence stock generously as part of a compromise arrangement with the Ordinary stockholders. It is, therefore, deplored that the board of this company should have taken this harsh view of the Preference stockholders' just rights. The legal position is more complicated. That the board are convinced that they are acting in accordance with the strict letter of the law is apparent from their decision not to invite the Preference stockholders to the coming meeting. The board's view is that the Preference stock- holders are not entitled to vote, since there is no variation of their rights. There are many City people, on the other hand, who regard the proposed repayment as such a complete abrogation of the Preference stockholders' rights as to entitle them to a voice in the proceedings.
It will certainly be a pity if this scheme is allowed to go through without a serious attempt being made to challenge it. If the S.M.T. board get their way the implications would be serious for all holders of high-rated Preference stocks, including the 51 per cent. Prefer- ence of Cable and Wireless (Holding). Indeed, the outcome of the S.M.T. plan may have an important influence on the capital re- arrangement scheme now being formulated by the Cable and Wireless board. It so happens that the British Transport Commission, as the owner of 5o per cent. of Scottish Motor Traction ordinary capital, is in a position to decide the fate of the board's plans. Will the Commission use its votes ? So far, no indication of the official attitude has been forthcoming. In my view the Commission should take this opportunity of supporting the Preference holders' ca,e for better terms. There is a job here, too, for the insurance companies, the investment trusts and the Stock Exchange Council.
A LOW-PRICED RUBBER SHARE Whatever may be the outcome of the Washington talks in the field of devaluation there should be a reasonable chance of a more favourable American attitude emerging towards natural rubber. During the past two years American policy, strongly influenced by the desire to protect the synthetic industry, has been the reverse of generous towards. the natural producers and has latterly been reflected in a fall in the price of rubber in Mincing Lane. Hopes of better things have already been responsible for a moderate re- covery in the shares of some of the leading rubber companies, but the improvement has been by no means uniform. Among the low- priced shares which have remained comparatively steady in recent weeks are the 2s. units of Eastern Sumatra Rubber Estates, quoted around 61d.
This company, which has estates in Sumatra and in Malaya. suffered severely from the Japanese occupation and has not paid dividends since 1941. Substantial progress has been made, however, in rehabilitating the properties and it is expected that the nest accounts, which are likely to be published within a few weeks, will show substantially improved results. Crop estimates in Sumatra have been exceeded by a large margin and the balance-sheet position is reasonably strong. As a low-priced speculation on the general prospects of rhi` rubber industry the shares do not look dear.
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