Julyan to Elliot (Assistant Under-Secretary)
Offices of the Crown Agents for the Colonies
Spring Gardens, London, S.W.
10th October 1865
The first payment to the Sinking Fund of the British Columbia Loan, authorized by Ordinance No 7 of 1864, is now due, and it becomes necessary that the Secretary of State should, in compliance with the provisions of Section 11 of that Ordinance, appoint Trustees for the management of the Fund, and name the Securities in which the money is from time to time to be invested.
The Trustees to the Sinking Funds of the two small loans previously placed on this marketforManuscript image for British Columbia are Mr Penrose G. Julyan and Mr Gordon Gairdner, and the Securities in which the money is invested are Consols.
In this instance it appears to me that the most advisable course to pursue would be for the Trustees to invest the money in the repurchase of the Debentures themselves, in the manner provided for in Section 12 of the Ordinance.
This could be done now under advantageous circumstances, as they are selling at a considerable discount, whereas when the investments for the Sinking Funds of the two first Issues were under consideration the DebenturescommandedManuscript image commanded a premium in the market. They can now be bought at a price which would be equivalent to an investment at 6 1/2 per cent per annum (viz 92) irrespective of the final saving to the Government of the difference between the selling and the redeeming price of the Securities.
The debentures so repurchased would of course be cancelled or destroyed in the presence of the Trustees to the fund.
Qu as to this.
I would also suggest, with regard to the Sinking Funds formed under the British Columbia Loan Ordinances of 1862 and 1863, that the Trustees should be authorized to use the money in the samemannerManuscript image manner whenever they may find an opportunity of purchasing the Debentures, issued under those Ordinances, below par.
Out of the £100,000 of Debentures created under Ordinance No 7 of 1864 nearly £80,000 have been disposed of, and sufficient funds have been realized to meet all the known liabilities of the Colony in this Country up to the present date—including £10,900 due to the Treasury—and to leave a small balance in hand. Sales are extremely difficult to effect however, even at the low price of 92, and it will probably be some time before the remaining £20,000 will find a market.
I have the honor to be,
Your most obedient servant,
Penrose G. Julyan
Minutes by CO staff
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ABd 12 Oct
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I confess I doubt about this.
Colonial Govt are very fond, when providing a sinking fund say for payment of debentures, of authorizing the Trustees to invest that fund in the repurchase of those debentures—wh seems to me perfectly right.
But then they go on to say that the debentures shall be cancelled. And the B. Columbia Orde goes farther & says SS 13 that after every such repurchase the annual payment to the Sinking Fund should be reduced.
But the result of this proceeding will be that the Sinking Fund will be wholly inadequate for its purpose.
The contributions to the Sinking Fund are calculated on the notion that the investments in it will bear interest up to the time when the repayment is made—say for 25 years.Manuscript image And if 1000£ of the B. Columbia Sinking Fund is to be invested in Ceylon debentures it will bear interest at 6 percent for that 25 years, & principal and interest will be forth coming amounting at that period (accordg to the tables) to 4383£ and will be available for paying of[f] that amount of the debt.
But if this 1000£ is invested in B. Columbia debres the debres are to be cancelled. The Colony therefore will save the interest instead of the Sinking Funds being increased by it—and the total debt, when 25 years afterwards it becomes due, will be diminished not by 4385£ as it ought to be—but by 1000£ only.Manuscript image I incline therefore to think that if any Colonial Sinking Fund is meant really to answer its purpose, it shd not be invested in debres of that Colony, except on condition that the Debentures remain the property of the Sinking Fund Trustees who shd receive from the Govt the annual interest like any other Creditor.
And I think moreover that when the debres have difft periods to run the investment in the debres on short periods should not be allowed to exceed (proportionally) the investments in debres issued for longer periods.
FR 12/10
Qu refer to Treasury suggesting this view.
The matter is self evident whenManuscript image reduced to figures in its simplest form.
According to [Mr Elliot Table 18?] the sum to be set apart annually and invested at 5 per cent in order to secure payment of 100£ at the expiration of 25 years is £2,095 say £2.1 but if this annual payment is employed in each year in paying off the debt the total sum so employed will be 25 x £2.1 or in other words £52.1 or £52.10 leaving £47.10 unprovided for.
If the period & assumed rate of interest are less the deficiency of course will be less, but some deficiency there will always be. In B. Columbia the annual contribution is 4 per cent—the period is 20 years—so that the total payments wd be 4 X 20 = 80 per cent and the deficiency 20 per cent.
EC 13
Other documents included in the file
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Elliot to G.A. Hamilton, Treasury, 21 October 1865, forwarding copy of the Crown Agent's letter for consideration, but expressing doubts as to the validity of the repurchase proposal.