Industrial Credit (Amendment) Bill, 1958 ( Certified Money Bill ) —Second and Subsequent Stages.

Minister for Finance (Dr. Ryan)

The object of this Bill is to facilitate the provision of finance for the Industrial Credit Company, Limited, with a view to making available additional capital for the development of industry. It is part of Government policy to expedite and increase the flow of capital to productive investment and, in this context, great importance must attach to the rôle of the Industrial Credit Company as the only specialised institution for the provision of capital for industry.

The Industrial Credit Company was established in accordance with powers given under the Industrial Credit Act, 1933. The authorised share capital of the company is £5,000,000 in £1 shares of which £2,000,000 has been issued and paid up. Of the £2,000,000 issued capital, shares to the nominal value of £1,991,393 are held by the Minister for Finance—all acquired by way of underwriting public issues of the company. The balance of £9,000 odd is in private ownership.

The present Bill will facilitate the financing of the company in three important ways: firstly, it will enable the Minister for Finance to take up directly shares in the company without the necessity for a public issue; secondly, it will enable the Minister for Finance to guarantee the principal and interest of borrowings by the company; and thirdly, it will enable the Minister for Finance to guarantee the payment of a minimum dividend on shares of the company held by parties other than himself.

On the first point, under the provisions of the 1933 Act, shares in the company can be taken up by the Minister for Finance only when an issue has been made by the company for public subscription and the Minister has agreed to take up such shares as the public do not apply for. In effect, therefore, State assistance to the company has been restricted to the underwriting of public issues of shares by the company. This is an awkward and unnecessary restriction which does not apply in the case of other State-sponsored companies. From time to time, market conditions may make a public issue by the company inadvisable, but as the law stands it would have to go through all the formality and incur the expense of a public issue before the State could invest further in the company's shares. Under the arrangements now proposed, it will be possible to make advances from the Central Fund for the purchase of shares, if so desired, without any prior offer or issue of shares being made to the public, who up to this have, as I indicated, taken up very few shares in the company. With the present restriction removed, it will be easier to increase the capital resources of the company. The power to purchase existing shares will also be available should the necessity arise.

Secondly, as I said, it is proposed under the Bill to take power to guarantee borrowings by the company. This power will extend to borrowings whether by way of the issue of debentures or loan stocks or otherwise within a limit of £5,000,000 on the amount of borrowings which may be guaranteed from time to time. Thirdly, as I mentioned, power is being taken to guarantee the payment of a dividend on the shares of the company held otherwise than by the Minister for Finance. No immediate occasion for the exercise of this power is envisaged but it is desirable that the company should have it in reserve as a possible means of attracting capital resources in the future.

It will be apparent that the extensive powers being taken in this Bill should give the company all the latitude necessary to meet any foreseeable requirements in the raising of additional capital and this in a manner appropriate to the special position of the company in financing new industries.

The Industrial Credit Company has now been in existence 25 years during which period it has played a most important part in the development of Irish industry. It is still the only organisation in the country devoted solely to acting as an underwriting and issuing house for industrial securities and operating generally as an industrial financing body. During the period of its existence the company, with a relatively small permanent capital, has been responsible for the provision of some £16,000,000 of capital for Irish industry. This substantial sum has consisted in the main of capital moneys raised by public flotations underwritten by the company. The balance has been provided in the form of loans, advances, guarantees, etc. for industry. By the test of its ability to secure capital for industrial enterprise on a scale much greater than its own permanent resources the Industrial Credit Company has been quite successful in very difficult circumstances.

Not only have the company's activities been beneficial to the economy as a whole but, so far as the narrower Exchequer interest is concerned, I am glad to be able to say that the moneys invested in the company have yielded a return to the taxpayer. The company has made a profit from the beginning and for many years now it has been paying a dividend of 4 per cent. on its share capital. This is a very creditable achievement when it is remembered that little or no return may be obtained from its investments in new industries during their early years and I wish to pay a special tribute to the directors and staff of the company for the success which they have achieved.

It has been clear for some time now that the resources of the company would have to be enlarged to enable it to discharge more effectively its duties of encouraging new and financing the expansion of existing industrial enterprises. It may be expected that the new industries of the future, directed in the main towards export markets, will require rather heavy capitalisation, apart from the fact of the substantial post-war rise in the cost of capital equipment. Adjustment to conditions of freer trade in Europe would necessitate considerable outlay on the adaptation and modernisation of existing industries. We must, therefore, face the position that the scope and importance of the activities of the Industrial Credit Company will undoubtedly increase.

The authorised share capital of the company, which is £5,000,000, appears sufficient for the present but, if and when the necessity arises, proposals will be brought forward to increase it. As I declared earlier, £3,000,000 of further share capital can, of course, still be issued within the existing limit. This together with the facility of £5,000,000 guaranteed borrowings envisaged for the company, by the present Bill, will bring the total amount which it will be empowered to raise by way of fresh issues of share capital and by guaranteed borrowings to £8,000,000. The company also has power to borrow where this does not involve the issue of debentures or a Government guarantee.

Negotiations have been taking place with the Irish commercial banks to secure their participation in the provision of fresh capital for the company. The banks have, of course, played their part in the financing of industry directly by way of advances for working capital and even for long-term capital purposes. It is, however, a common feature of industrial financing in other countries that the banks provide most, if not all, of the capital for specialised institutions like the Industrial Credit Company. This method of financing industrial development offers advantages to the banks themselves as well as being in the national interest. It spreads the risks of individual banks over a wide field and precludes identification with the fortunes of individual firms. Also, it places at their disposal for investment purposes the experience and specialised services of an organisation established to cater for the particular needs of Irish industry.

It was suggested to the banks that they might consider participating by taking up a substantial block of shares in the company, if necessary, with a guaranteed minimum dividend. But I understand, however, that they would prefer to make their contribution in the form of guaranteed loan stock rather than shares and they have agreed in principle to make a contribution amounting to £1,800,000 in this way. This will enable the Industrial Credit Company not only to discharge completely its own overdraft indebtedness and to finance directly its liabilities under existing bank guarantees, but also to have available, over and above this, a balance of about £400,000 for new business. Further, a provision of £500,000 was included for the company in the State Capital Budget 1957-58. This sum could not, as I explained earlier, be issued to purchase directly shares of the company pending the enactment of this Bill. The amount will, however, be brought forward and used to purchase shares in the company as soon as this Bill is enacted. The company will, thus, have almost £1,000,000 at call for new projects apart from whatever may become available to it by the turning over of its existing capital.

This is the first occasion on which the banks have participated on a long-term basis in the financing of the Industrial Credit Company and I would like to express the Government's appreciation of their co-operation and practical assistance in this, no less than other aspects of national development.

As to the company's further capital requirements, I hope it will be possible to arrange for tripartite financing on the basis of contributions by the banks, insurance companies and the Exchequer. Apart from being an agency through which Irish savings can be made available for productive industrial development, the Industrial Credit Company could also serve as an agency through which investment of foreign institutional capital in Irish industry might be made.

Arising out of the enlargement of the resources of the Industrial Credit Company, Limited, it is proposed that the system by which loans for industrial purposes are guaranteed under the Trade Loans (Guarantee) Acts should be replaced by an alternative system by which similar loans will be provided by the Industrial Credit Company. One advantage of this change is that applications for assistance in this form can be dealt with more expeditiously and with fewer legal formalities than are necessary under the present system. There is also advantage in having one organisation dealing with the provision of assistance from State sources for industrial development by way of share and loan capital.

From the date of the change the acceptance of applications of the ordinary kind from industrial firms by the Department of Industry and Commerce will cease. In all cases which would previously have been referred to the Advisory Committee set up under the Trade Loans (Guarantee) Acts, the applicants will be referred to the Industrial Credit Company. In settling the amount of resources to be provided for the credit company from time to time account will, of course, be taken of any additional needs of the company for the purpose of their new function.

The statutory limits fixed under the Trade Loans (Guarantee) Acts have nearly been reached, and no further loans of any size could be guaranteed unless amending legislation were enacted. It is not proposed to repeal the Acts, but it is intended that recourse to them will be made only in very special circumstances to deal with cases which would not come within the functions of the Industrial Credit Company.

I do not have to labour the need for increased productive investment. There is now, I think, a general awareness that we must increase significantly the proportion of the country's capital resources devoted to such investment if the economy is really to expand. The new arrangements which I have outlined are designed towards this end in the industrial sector. The Government are resolved to ensure that the resources of the Industrial Credit Company will be adequate to meet all the reasonable requirements of the financing of industry and they would indeed be very glad to see a continuing growth in these requirements. They wish to ensure that no industrial project with reasonable prospects, particularly in the export market, will fail to go forward for lack of the necessary capital and I hope that this knowledge will give a confidence and incentive to industrialists to establish new and to re-equip and expand existing industries.

Dr. O'Donovan

I noticed that the Minister gave us some little information over and above what he gave to the Dáil. At the same time, he was extremely careful not to disclose anything of the unfortunate history of some of the biggest enterprises that have been established by the Industrial Credit Company since the war. Since the Minister did not see fit to do so, I am not going to do it, either. The Minister might have made some reference to the difficulties which patently came about through the investment of the very large sums of money in certain enterprises in which the money is now solidified, iced up—call it what you like.

I welcome the Bill for what it does. I particularly want to speak on behalf of the small companies, the small institutions. The Minister informed us at the end of his statement that the trade loan guarantee system would go into disuse. If that is the case, the Industrial Credit Company will want to change their attitude very much towards the type of enterprise that I have in mind. I tried to get them to assist a couple of these enterprises of excellent standing and with a good deal of antiquity in this country. I failed to get any assistance for them.

The Minister repeated what he said about the Government expressing their appreciation of the co-operation of the commercial banks. I have no objection to that manner of expressing it, but I do take serious exception to the manner in which this was publicised in the daily newspapers, with inch-high headlines, as if the commercial banks were doing something quite unexpected and that it was of great benefit to the development of industry.

When that matter came up, Senator Lenihan said at column 165, Volume 9 of the Official Report during the course of his speech on the Central Fund Bill in the Seanad:—

"I think it is a heartening sign that £1,800,000 of that has been advanced by the banks. It is a very heartening sign to see that expression of confidence in the future of the country, that the banks have seen fit to advance £1,800,000."

The Official Report then continues:—

"Dr. O'Donovan: Nonsense. They had advanced it already. They only moved it down one niche on their balance sheet.

Mr. Lenihan: Senator O'Donovan is on his old hobby-horse again."

I do not know whether I was on a hobby-horse or not. I do not know what kind of a horse Senator Lenihan was riding. What happened to him was that, in his hurry to prepare his speech, he read only the Minister's statement part of the way. When he came to the end of the paragraph, he dropped off.

To prove my point, I will read out what the Minister said in the Dáil and what he repeated to-day more or less but, perhaps, not word for word. Here is what he said in the Dáil at column 715, Volume 166 of the Official Report on Friday, 21st March, 1958:—

"It was suggested to the banks that they might consider participating by taking up a substantial block of shares in the company, if necessary, with a guaranteed minimum dividend; but I understand they would prefer to make their contribution in the form of guaranteed loan stock rather than shares. What matters—and I am glad to announce this—is that they have agreed in principle to make a contribution amounting to £1,800,000."

Senator Lenihan stopped off at that point. I have no objection to the manner in which the commercial banks handled this, but the Minister went on to say in the next paragraph:—

"This will enable the Industrial Credit Company not merely to discharge completely its own overdraft indebtedness and to finance directly its liabilities under existing bank guarantees, but also to have available, over and above this, a balance of about £400,000 for new business."

That means that the commercial banks were going to allow the Industrial Credit Company to convert £1.4 million of overdraft into an investment. In other words, taking the statement in the last number of the Quarterly Statistical Bulletin of the Central Bank, it means moving it down from item No. 4 in the banks' balance sheets to item No. 5, No. 4 being loans and advances, and transferring it down to item No. 5. Again, should we be unduly grateful to the banks for doing this? I do not think so. The investments in item No. 5 in their balance sheet in this country are about £34,000,000. The investments across the water in Britain are £109,000,000 approximately, so that we have invested here about £34,000,000 and over £109,000,000 invested across the water.

Again, I am not concerning myself with the position of the commercial banks in the matter. I think they have been co-operative, but what I do not like to see is this soft-pedalling on the part of the Minister of a position which really should have been frankly exposed by him. I should be quite entitled to disclose it. It is common property round this city what companies they are whose shares cannot and are never able to be sold on the stock exchange and who have never been able to make a profit of any sort. I think it would have been better if the Minister told us frankly what the position was, straight, fair and square, especially in view of the fact that in Dáil Éireann he said at column 717:—

"It is unnecessary for me to speak at length on the need for increased productive investment. There is now general appreciation that we must increase significantly the proportion of the nation's capital resources which is devoted to such investment if the economy is to expand"...

I agree fully with the Minister, but let me say this about it. There are really three sorts of investment. There is the social investment which does not pay for itself at all, that is to say, what is called the housing of the labouring classes. I use the phrase "housing of the labouring classes" because that was in the Acts traditionally. There is the other group of housing, under the Small Dwellings Acquisition Acts, which does pay for itself and is quite as productive as anything else. There can be no difference of opinion about that.

Then you go into the territory of production in the sense of the producing of goods or services which can be exported. You have one that is productive, in the sense that it pays for itself financially and one which is not productive in that it does not do so. A great deal of the talk about increasing production is doing grave disservice to the political system in the manner in which it is being floated around the country week after week, because there is too much evidence in one part of the economy, at any rate, that increased production gives rise to talling prices.

It is all right, of course, for a monopoly concern that is producing a single article within a closed economy. It does not have to worry about falling prices, if it can sell its product within the community. But I do notice again in the Minister's statement in relation to the banks to-day that he has made what I take as a hint of something which has been agreed with the banks. I see no objection to making £400,000 available from the commercial banks and £500,000 from the Minister out of his Budget for capital purposes to the Industrial Credit Corporation, if too much of it is not sunk in one or two big disastrous investments, such as have been incurred at certain stages since the war. Perhaps that is a good hint that it should not be put into very large-scale investments unless there is a great deal of assurance that those investments will pay for themselves and be worth while.

The Minister to-day used a phrase which, I think, was new and was not in his statement to the Dáil, that this arrangement insulated the banks against the financing of individual firms. That was probably desirable, that they should be insulated in that fashion and should make moneys available in a block way to the Industrial Credit Company and that then they would not be expected to finance enterprises in which there was an undue degree of risk. It does not, I hope, suggest what I have been referring to, that we might again have investments in new firms on such a large scale that sizable sums of money would be lost.

It is true, indeed, that when you have continuous inflation and a falling off in the value of money, you can never be quite sure that money is lost, since it may eventually be caught up on, and therefore investments made ten years ago might eventually pay off through the loss in the value of money. But I do hope that the Industrial Credit Company, when it gives these new moneys, will show a great deal more regard for small firms which require £5,000 or £10,000, instead of putting sums of the order of £250,000 into individual concerns.

On the whole, the Minister is to be complimented for having made these arrangements. It gets the Industrial Credit Company out of a jam, and I suppose the banks are no worse off, as between having an overdraft of £1.4 million, which is frozen, and having debenture or something of that sort, guaranteed loan stock, at the same amount. In fact, what the commercial banks are doing, for Senator Lenihan's information, is putting up £400,000.

Professor O'Brien

I do not wish to speak on this Bill. I simply rise to ask a question which the Minister might perhaps elucidate in his reply. The Minister referred to the desirability of building up additional export industries, and we know that this is the subject of another Bill which will be coming before the House in a couple of weeks' time, the External Investment Bill. In the excellent brochure which was published by the Industrial Development Authority for foreign circulation, it was stated that one of the advantages in this country was the presence of the Industrial Credit Corporation to assist in the raising of capital. I should like to know from the Minister, because it does not appear to me to be clear in this Bill or the other Bill, whether facilities will be available by the Industrial Credit Corporation for new external companies which will come into this country under the External Investment Bill, which has changed its name in the course of its career. I am asking genuinely with a desire to get information, and there is no question of making any point.

Mr. Burke

I wish to make one observation. On the Central Fund Bill, I referred to many of the disadvantages which a private company was suffering from under the law here. I wish to inform the Seanad that recently I had to approach the Industrial Credit Company with regard to raising capital for private companies, and I was informed by the Industrial Credit Company that one of the disadvantages that corporation laboured under was the fact that they were not permitted to lend moneys to private companies as redeemable preference shares, and that if they had that power and authority, they would in many cases assist those smaller companies. Senator O'Donovan mentioned that we are all thinking of the person who wants a quarter of a million pounds, but there are hundreds of companies who want £5,000 or £10,000, and we ought to bring the law up-to-date in order to be in a position to help them.

Dr. Ryan

Senator O'Donovan said that I should have made some reference to the unfortunate experiences of the Industrial Credit Company. I have some knowledge of what Senator O'Donovan is hinting at, and I think he will find, if he waits a while, that some of these experiences have not been as bad as they might appear at present. In any case it is not a good thing to give the impression that a company of this kind has been unsuccessful in its investments. It has been there for 25 years and paid 4 per cent. on its capital, and I take it that they did that without being unduly liberal in paying out money for interest.

In dealing with a finance company, we must treat their affairs with a certain amount of reserve. People who deal with them like to have their affairs treated in confidence and we cannot, of course, mention names, but on the whole we must claim that the company has been very successful. It would be miraculous if a company like that could go on over 25 years without coming up against a bad case here and there.

Senator O'Donovan said that, if the Trade Loans (Guarantee) Acts facilities were removed, this company would have to change its attitude somewhat. I am informed they have lent to very small companies. I was told, when I made the inquiry myself when preparing this Bill, that they have actually come down as far as £2,000 in one of their loans. There, they are not too big to consider the case put up by the small man. As Senator Burke pointed out, there is a difficulty about a certain type of private company. It would be impossible for me to put that right in this Bill. It must be made right in a Bill dealing with company law, which is due to make its appearance.

Mr. Burke

It is long overdue.

Dr. Ryan

Senator O'Donovan said we should not be unduly grateful to the banks. I suppose we should not be unduly grateful to anybody, but we do not want to be churlish so we try to take the middle course and say we are thankful to the banks for what they have done. Senator O'Brien asked me about their attitude towards foreign companies. There is nothing to preclude their making a loan to a foreign company which comes in here to set up for export business. So far, I do not think they have done so. It is left an open question. I think that, if it were the deciding factor in bringing in a desirable company to do export business, it would be well that we should give them the power to make a loan to help them to get into business.

Question put and agreed to.

Agreed to take the remaining stages now.

Bill put through Committee, reported without recommendation, received for final consideration and ordered to be referred to the Dáil.

Business suspended at 6.5 p.m. and resumed at 7.15 p.m.

Seanad Éireann debate - Wednesday, 16 Apr 1958