CHAPTER VII.--PROSPECTS FOR THE IMMEDIATE FUTURE.
2. THE INTERNATIONAL POWER AND PAPER COMPANY OF NEWFOUNDLAND, LIMITED.
A. Capitalisation. (continued)
406. Negotiations were begun
in 1926 with the International Paper Company of New York and completed in 1927. An
Act to confirm the agreement reached was passed by the Newfoundland Legislature in
1927, and the actual transfer took place in January, 1928.
407. The reconstruction scheme
represented by this sale involved drastic financial modifications. Briefly, the
International Paper Company took over the properties for a cash payment of £500,000
and the assumption of the three existing stock issues, amounting to £5,000,000. All
other secured and unsecured liabilities, except as hereinafter mentioned, were
cancelled. The Bankers who held £2,000,000 bonds of the Newfoundland Power
and Paper Utilities Corporation, Limited, received, in consideration of the sale and
the cancellation of these bonds, the sum of £500,000 above mentioned and preference
shares, to the amount of £2,000,000, in a new company which was formed to work the
undertaking, viz., the International Power and Paper Company of Newfoundland, Limited.
The United Kingdom Treasury and the Bank of England each have the right to appoint a
Director on the Board of the Company, and have appointed Sir George Barnes and Mr. Frater
Taylor respectively. The Newfoundland Government has the right to appoint two Directors,
and has appointed Mr. H.A. Winter, a Member of the Executive Council of Newfoundland, and
Mr. W. Abbott, a Member of the House of Assembly.
408. The present position of the
company in respect of (1) share capital, and (2) loan capital may be summarised as
(1) Share Capital.--
The nominal capital of the Company is £5,000,000 preference and common stock (for certain
legal reasons the sterling denomination was used), divided into 5,000,000 shares of £1 each.
There have actually been issued:--
(a) £2,080,000 five per cent. preference
cumulative after 1933. Of these,
£2,000,000 are held by the Bank of
£80,000 by Reid interests.
These shares are non-voting except two
default and have no pre-
emptive rights in respect of additional
(b) £500,000 common shares, all of which
held by the International Paper
Company of New York.
(2) Loan Capital.--(a) £1,000,000 five per cent. First Mortgage
due 1968. These were issued in connection with the repayment of the money raised in
1925 as mentioned above and are the first charge upon the properties. Under the Act
of 1927 the Company has the right to borrow fresh money to a total of £4,000,000 (i.e.,
an additional £3,000,000) for the purpose of extensions of its plant, etc., subject to
strict conditions ensuring fresh adequate security; and these bonds form part of such
(b) £2,000,000 4½ per cent. "A" Debenture Stock, guaranteed
by the United Kingdom Treasury.
(c) £2,000,000 5½ per cent. "B" Debenture Stock, guaranteed
by the Newfoundland Government.
(d) About $1,550,000 (say £320,000) due to the Bank of Montreal
for current loans as working capital. The Bank has a floating charge on the wood and
paper of the Company, secured by security receipts, and the amount of the advances
fluctuates within a reasonably small margin.
(e) Trade and other current liabilities which are normal with the
exception of loans approximating to $1,000,000, due to the International Paper
409. Certain aspects of the
"A" and "B" Debenture Stock are of importance and should be noted. When these
issues were originally subscribed the "A" Stock was to have been redeemed, through
a Sinking Fund, in 1948; the "B" Stock a few years later. The International Paper
Company represented that they could not bear the heavy burden of such sinking fund,
and arrangements were made to lighten the burden by extending the period over which
repayments were to be made by the Newfoundland Company.
410. These arrangements were as
follows:--The "A" Stock will be paid off at par by 1948 in accordance with the terms
of the original issue, partly by means of sinking fund monies to be provided by the
Company and partly by means of sinking fund payments to be provided by the United
Kingdom Treasury. These latter amounts begin in 1933 and increase from £47,700 in
that year to £169,200 in 1948. The "A" Stock, redeemed by the payments made by the
Treasury is to be re-issued to the Treasury in the form of extended "A" Stock, which
is to be redeemed by the Company, at a premium of 5 per cent., by means of Sinking
Fund payments over the period 1949-1973. It carries interest at the rate of 4½ per
cent. per annum from the date of issue. In point of security the extended "A" Stock
ranks immediately after the "A" Stock outstanding. It does not carry the guarantee
of the United Kingdom Treasury.
411. The period of the "B"
Stock guaranteed by the Newfoundland Government has been extended to 1970. From
1928 to 1933 the Company was to pay (and has paid) about £12,000 yearly in respect
of capital repayment and from 1933 to 1970 will pay just over £16,000 yearly in this
respect. The "B" Stock is redeemable at a premium of 5 per cent.; this premium,
however, is not guaranteed by the Newfoundland Government.
412. The Company has the option,
at any interest date, provided that it has given three calendar months' notice of its
intention, to pay off in whole or in part either the "A" Stock or the "B" Stock or the
extended "A" Stock.
413. The trust deeds securing both
Bonds contain full and careful provisions for the protection of the bondholders and the
appointment of receivers, etc., in case of default.
414. As stated above the Agreement
made in 1927 was confirmed by an Act of the Newfoundland Legislature. Besides embodying
the new financial terms explained above, the Act contains provisions regarding taxes,
duties and other matters usually contained in agreements respecting new industries. The
most important of these provisions are the following:--
(a) As long
as any "B" Stock is outstanding, the Company must maintain its liquid assets at an
inventory value of at least half a million dollars (£100,000). It may be said that
to date those assets have been far in excess of that figure.
(b) The provisions regarding Customs duties are elaborate, but
broadly they give the Company free importation for twenty years of all material needed
for genuine initial construction work, but not in substitution for old material; on
materials needed for renewals, the duties generally in force, but not to exceed
twenty-five per cent. of cost, are to be applicable for forty years; and special
terms are inserted regarding particular goods and classes of goods.
(c) In lieu of certain royalties payable by the old company
on water power generated and paper manufactured, the Company has paid a straight
tax, up to 1933, of $75,000 (£15,000) annually; from 1933 until 1973 the tax is