INCREASE IN ISSUE OF DEBENTURE STOCK BY CITY COUNCIL

11.36 a.m.

The Financial Secretary (Mr T. M. Hart): Sir, I have His Excellency the Governor's authority to move, that

WHEREAS by a resolution* of the Legislative Assembly on the 7th day of March, 1956 the City Council was empowered to borrow a sum not exceeding $30,000,000 by the creation of debenture stock upon the terms more particularly described in the said resolution:

AND WHEREAS by a resolution+ of the Legislative Assembly on the 25th day of

*"That this Assembly, in accordance with section 343 of the Municipal Ordinance (Chapter 133), sanctions the raising of a loan not exceeding $30 millions by the City Council for the purposes stated and under the conditions specified in Sessional Paper No. Cmd. 12 of 1956."

+"That this Assembly, in accordance with section 343 of the Municipal Ordinance (Chapter 133 of the 1936 Edition), sanctions the raising of a loan to be effected by increasing the issue of Singapore City Council 5 per cent Debenture Stock 1956 from an amount not exceeding $30,000,000 as sanctioned by a resolution of the Legislative Assembly on the 7th March, 1956 to an amount not exceeding $50,000,000 for the purposes stated and under the conditions specified in Sessional Paper No. Cmd. 12 of 1957." April, 1957 the said sum of $30,000,000 was increased to the sum of $50,000,000:

AND WHEREAS under the said resolutions the sum of $36,937,750 was duly subscribed leaving the sum of $13,062,250 still un-subscribed and the Stock in respect thereof unissued:

This Assembly, in accordance with section .343 of the Municipal Ordinance (Chapter 133 of the 1936 Edition), sanctions the issue of Stock to raise the said sum of $13,062,250, still un-subscribed at the 30th September, 1957, subject to the provisions of the Ordinance and to the further condition that the said sum of $13,062,250 be raised by the issue of Debenture Stock at a discount of 10 per centum, i.e. at the price of $90 for each $100 of Stock bearing interest at the rate of 5 per cent per annum and repayable at par on the 1st day of May, 1976, or prior thereto at the City Council's option at par on any half-yearly interest date on or after the 1st day of May, 1966, upon six calendar months' notice being given.

Sir, you will recall that in March 1956 the Assembly authorised the City Council to issue debenture stock not exceeding $30,000,000 for the further essential expansion of its electricity, gas and water undertakings. The rate of interest approved was 5 per cent and the stock was subject to redemption at the discretion of the City Council at any time between 1966 and 1976 on due notice being given. The issue was intended to be a conversion issue in so far as the City Council had decided to redeem the Singapore Municipal 5 per cent Debenture Stock 1926 and hoped that a substantial number of the holders of that stock would convert into the new stock.

The new issue was favourably received by the investing public. The Central Provident Fund supported it generously and by April of this year the full amount of the issue had been taken up. The City Council, however, was still in urgent need of funds for its public utility undertakings, and, rather than float a new loan, it was decided to seek permission to raise the ceiling of the existing loan to $50,000,000. This was the subject of a motion to the Assembly in April of this year when it was resolved that the authorised amount of the 1956 loan would be increased to $50,000,000. Subscriptions continued to be made to the loan for some time after this resolution, was passed. By the middle of the year, however, the downward movement in the value of gilt-edged securities had become marked, yields had increased, and a 5 per cent loan at par had no longer many attractions for investors. The position at the beginning of September was that subscriptions had ceased to come in and a total of $13,000,000 remained unsubscribe.

The need of the City Council for funds to meet impending bills, however, remained urgent. The matter was discussed with the City Council authorities and it was decided that in all the circumstances existing at the present time, it would be wiser to issue the balance of the existing loan at a discount rather than float a new loan at a higher rate of interest.

The matter has also been discussed with the authorities of the Central Provident Fund, which, as you know, is the main source of investment capital available to Government and the City Council at the present time. The Board has agreed to support the issue of the balance of the existing 5 per cent loan if the issue price is reduced to allow a discount of 10 per cent. This discount gives a yield of 5? per cent to redemption and is in line with the present yield on similarly dated stock in the United Kingdom. Sir, I beg to move.

The Minister for Education (Mr Chew Swee Kee): Sir, I second the motion.

Question proposed.

11.41 a.m.

Mr G. A. P. Sutherland (Nominated): Mr Speaker, Sir, in this Assembly on 29th July, in the debate in Committee on the Local Government Bill, the hon. Member for Tanglin moved an amendment which I opposed, and which amendment was to the, effect that loans raised by the City Council should be funded over the life of the physical assets to which they related and not the period from issue to redemption. Now, Sir, the House had been in committee on the Bill for several days and, I suspect, the Press were getting rather bored with the debate. Certainly the Press Gallery was pretty empty and the Public Gallery was quite empty, and I am sure that the star reporters of the various newspapers were absent at that time. But be that as it may, I was reported at that time as saying that there was a feeling that the Malayan dollar was slipping. Now, in point of fact, Sir, I made no reference whatsoever to depreciation, supposed or otherwise, of the Malayan dollar; at least not specifically. I am, Sir, a member of the Currency Board and I know something about these things. But in any case as a banker I am fully conversant with the Currency Ordinance and I know that the Malayan dollar, the Straits dollar, is fully backed by sterling and is at least as strong as sterling. Besides, I repeatedly told this House on a previous occasion that the only currencies to survive the Japanese holocaust were the Straits dollar and the Hongkong dollar, because they had 100 per cent backing.

Now, Sir, what I was drawing attention to was at that time the universal depreciation of Currencies, to creeping inflation with its inevitable commitment of world-wide reluctance to invest in gilt-edged securities, that is government and municipal bonds, or indeed in any other type of fixed interest securities. The position of course is exactly as I stated it was and there has been no change in the interim. On the contrary, there has been a further slump in gilt-edged markets in the sterling area following the counter-inflationary measure by the Bank of England in raising the Bank Rate by two per cent to seven per cent per annum. Now, Sir, whether or no such action is an effective weapon in the battle against inflation is a matter of opinion. The relevance of all this, Sir, is this: that however unpalatable it may be to local investors who may have purchased this stock fairly recently and now find that it is offered at a greater discount, the fact is that the present decision is both necessary and inevitable. These are facts which intelligent people must fully realise.

There may be those who feel that we should ignore economic changes in other parts of the sterling area, but as long as the existing fiscal and economic links continue with the United Kingdom, we cannot successfully maintain any attitude of economic isolation. It is doubtful if we could. Even if this island were completely and utterly independent, we should still be faced with the same position, as its existence depends on the free and unrestricted movement of money and that presupposes an approximate parity of interest and discount rates with those in the United Kingdom.

The City Council wants this money. The City Council must therefore offer the public an adequate and contemporary return on their money. It is as simple as that. Sir, I support the motion.

Question put, and agreed to.

Resolved, that

WHEREAS by a resolution of the Legislative Assembly on the 7th day of March, 1956 the City Council was empowered to borrow a sum not exceeding $30,000,000 by the creation of debenture stock upon the terms more particularly described in the said resolution:

AND WHEREAS by a resolution of the Legislative Assembly on the 25th day of April, 1957 the said sum of $30,000,000 was increased to the sum of $50,000,000:

AND WHEREAS under the said resolution the sum of $36,937,750 was duly subscribed leaving the sum of $13,062,250 still unsubscribe and the Stock in respect thereof un-issued:

This Assembly, in accordance with section 343 of the Municipal Ordinance (Chapter 133 of the 1936 Edition), sanctions the issue of Stock to raise the said sum of $13,062,250, still unsubscribe at the 30th September, 1957, subject to the provisions of the Ordinance and to the further condition that the said sum of $13,062,250 be raised by the issue of Debenture Stock at a discount of 10 per centum, i.e. at the price of $90 for each $100 of Stock hearing interest at the rate of 5 per cent per annum and repayable at par on the 1st day of May, 1976, or prior thereto at the City Council's option at par on any half-yearly interest date on or after the 1st day May, 1966, upon six calendar months' notice being given.