I move:—
Go bhfuil sé oiriúnach a údarú go gcuirfí ar an bPríomh-Chiste no ar a thoradh fáis muirear agus íoc na gcostas uile fé n-a raghaidh an tAire Airgid chun éifeachta do thabhairt d'Acht ar bith a rithfear sa tsioón so chun socruithe do dhéanamh chun sealbha de stoc Iasachta Náisiúnta 5% Shaorstáit Eireann, 1935-45, d'atharú ina stoc d'urrús nua bunófar chuige sin agus chun socruithe do dhéanamh i dtaobh nithe bhaineas leis an atharú san.
That it is expedient to authorise the charge on and payment out of the Central Fund or the growing produce thereof of all expenses incurred by the Minister for Finance in carrying into effect any Act of the present session, to make provision for the conversion of holdings of stock of the Irish Free State 5% National Loan, 1935-45, into stock of a new security to be created for that purpose and to provide for matters incidental to such conversion.
In moving this resolution I think this is an opportune moment to announce the general terms of the conversion issue. As I indicated in my speech on the Second Reading last night, the total outstanding amount of the loan to be redeemed or converted is £7,000,000. Holders of the outstanding stock will be asked to convert their holdings, either in whole or in part, at their option, into an equal nominal amount of stock of a new issue in terms of the prospectus to be published to-morrow. The conversion will be a par for par conversion. The prospectus will provide for the payment of interest on the stock at the rate of 4 per cent. per annum and for its redemption at par on 1st December, 1970.
The Government of the Irish Free State will undertake to set aside on 1st June and 1st December of each year a sum equal to 2 9/16ths per cent. of the total nominal amount of the loan issued. After deducting therefrom the amount required for payment of interest, the balance of the sum so set aside will be carried to an accumulative sinking fund which will be applied to the purchase of the loan for cancellation or otherwise invested for the benefit of the sinking fund.
Both the principal and interest of the loan will be a charge on the Central Fund of the Irish Free State. The loan will be known as the 4 per cent. Conversion Loan 1950-70 and, though as I have already said it will be repayable at par at the latest on the 1st December, 1970, the Government of the Irish Free State will have the option to redeem the stock in whole or in part at par on or after the 1st December, 1950, on giving three calendar months' notice in Iris Oifigiúil.
The stock of the loan will be a trustee investment under the Trustee Act, 1893, and trustees may invest therein even though the price at the time of investment exceeds the redemption value of £100 per cent. Dividends on stock of the issue will be paid without deduction of income tax, but the income derived from such dividends will be assessable to income tax in the hands of recipients at the rates of tax appropriate to their respective incomes. Stock of the issue and the dividends payable thereon will be exempt from all taxation of the Irish Free State, present or future, if it is shown in the manner directed by the Minister for Finance that the stock is in the beneficial ownership of a person who is neither domiciled nor ordinarily resident in the Irish Free State. Simultaneously with the conversion offer, the banks will be further authorised to offer for cash subscription at par stock of the 4 per cent. Conversion Loan, 1950-70, to an amount which, when added to that resulting from conversions of the First National Loan, will not exceed in the aggregate £7,000,000; but the Minister for Finance may reduce the amount to be allotted in respect of such subscriptions by a sum not exceeding any Sinking Fund available for the redemption of the First National Loan.
In regard to this offer for cash, I may perhaps say a word. It is not the desire of the Government to acquire new money for the Exchequer through this conversion operation. But it is not, in fact, so easy to avoid doing so as might be thought, and some new money for the Exchequer may, in fact, be acquired. The original amount of the First National Loan was £10,000,000, but, as the House is aware, this has now been reduced by Sinking Fund charges and cancellation to £7,000,000 exactly. In addition, we have unapplied Sinking Fund to the amount of £1,150,000 approximately. This arises out of the fact that for a number of years past the price of the loan has been so high that, from the Exchequer point of view, it would have been uneconomic to have bought at 105, 104 or 103 stock, which, in a comparatively short time, would be paid off at par. Thus the Sinking Fund Appropriation was invested instead in other securities and has been held against the day of redemption. Accordingly, while the total amount of stock outstanding is £7,000,000, the net debt to be dealt with does not exceed £5,850,000. The result is that if our offer of conversion is accepted to a greater extent than £5,850,000 the Sinking Fund becomes surplus by the amount of the excess over that figure, and it will be wholly surplus if the conversion offer is accepted to the extent of the outstanding £7,000,000.
If the Government were an entirely free agent in the matter the natural and simplest course would be to accept applications for conversions only to the extent of £5,850,000 or thereabouts and to apply the Sinking Fund in repayment of the balance of the stock of the First National Loan. This might be done either by accepting the first applications aggregating £5,850,000, or by scaling down all applications pro rata to this figure.
But the rights of the investor must be recognised. So far back as the 1st September last, when the redemption of the First National Loan was announced, it was intimated to holders that they would be afforded an opportunity of converting their holdings into stock of a new loan. Even if no announcement to this effect had been made, most investors would have presumed that a conversion offer would be forthcoming. We feel that it would be unfair to investors and would injure the credit of the State if we were now to make an arbitrary reduction in the number of conversion applications to be accepted and to cause loss and inconvenience to investors who have refrained from realising their holdings and have lost thereby opportunities for new investment. It would be still more indefensible to make a proportionate reduction in the amount of all conversion applications received and redeem a part of each holding only since the expense of reinvesting a small amount is proportionately very heavy. We, therefore, acquiesce in the decision that all holders who apply for conversion of their existing holdings must be given a full allotment of the new stock and that if the aggregate of such applications exceeds the £5,850,000, which is the approximate amount of the net debt outstanding, the Sinking Fund will to that extent prove surplus.
Similar considerations apply, though not so forcibly, to the question of cash applications received from persons desiring to invest in the new Conversion Loan. We would prefer to accept cash subscriptions only to an amount that would, with the available Sinking Fund of £1,150,000, cover the amount of the First National Loan for which application for redemption is made. But this may be nothing at all and in any event will probably be a very small sum. We have to recognise, therefore, that it may be desirable to withhold the Sinking Fund in whole or in part and to accept the cash applications of those investors who wish to invest in the new State security. At the same time, I wish to make it clear that it is not our intention to accept cash subscriptions to an extent that would, with the amount completed, bring the new stock to a figure in excess of that of the old stock to be dealt with. To the extent that the Sinking Fund proves surplus to requirements it will be drawn back into the Exchequer exactly as if it were the proceeds of new borrowing.
To sum up, then, on this point, when the conversion operation is completed on the 1st December next, the amount of the new conversion stock in the market will not exceed £7,000,000 and may be as low as £5,850,000 or thereabouts. We are prepared to guarantee to all existing holders of the stock of the First National Loan the right to convert into the new security. We cannot give as comprehensive an undertaking to new cash subscribers, and in their case we propose to be guided by events.
With regard to the manner of subscription, cash applications may be either fully paid, in which case the whole sum payable must be lodged on applications, or may be instalment applications. In the latter case it has been arranged that the instalments will fall on dates which are likely to suit the investing public. The first dividend on the new stock will be paid on the 1st June, 1936, and will be at the rate of £4 per cent. per annum (i.e., £2 per cent. actually) on holdings resulting from conversion, and on holdings created in consequence of fully paid cash applications. The dividend on holdings created in consequence of instalment applications will be at the rate of £1 12s. 0d. actually, this being the created amount accruing on the instalments to be paid on the dates fixed. Dividends due on the 1st December next on stock of the First National Loan will be paid in the usual way to holders.
The House may have noted that the redemption period of the new loan has been fixed at 1950-1970. This period has been chosen largely because the respective redemption periods for the 2nd, 3rd, and 4th loans either coincide with it or fall within it. Looking ahead it may happen that some future Minister for Finance, 20 or so years hence, may find it advantageous to convert and consolidate the several State issues into one loan and for that reason it has been thought desirable to adhere so far as possible to the redemption periods fixed for our other loans.
As to the merits of the issue, I feel that after what has been said in regard to it by Deputy Cosgrave, Leader of the Opposition, and Deputy Thrift few words of mine are required to recommend it to the public. There is, however, one aspect of the issue, to which Deputy Cosgrave last night was good enough to direct public attention, which I should like to stress for the benefit of holders of the existing loan.
If they redeem their holdings they are likely to find it expensive to re-invest their capital. On the other hand if they convert their holdings they will immediately have, at no expense to themselves, a gilt-edged investment giving a return of four per cent. for a minimum period of 15 years. And, of course, they will have absolute security in regard to their capital.
With regard to intending cash applicants it is important that they should realise that if they unduly delay their applications holders who desire to convert and the Sinking Fund may come in ahead of them. It is therefore important that they should apply early, as indeed should existing holders whether it be for redemption or conversion. Again, I have to thank all sections of the House for the cordial spirit of cooperation which they have manifested in regard to this conversion operation. I am sure that with such whole-hearted assistance it will be the success we all wish.
Resolution agreed to and ordered to be reported.
Report agreed to.