Prospectus Criticised.

Rabaul’S Electric

Light

THERE has been much controversy

and some heart-burning concerning

the installation of a public electric power station in Rabaul, N.G. Tenders have been invited two or three times

by the Administration —and, finally, a

franchise appears to have been given to a Rabaul firm. The latter are now pro posing to form a public company.

We have not seen a copy of the pros pectus; but a Rabaul resident has written to us in the following terms: I recently received a prospectus of the Rabaul and District Electricity Supply Company Lim ited. There are several features which could do with explanation on the part of the pro moters, as I have set out below: 1. In accordance with section 6 of the Com panies Ordinance of this Territory, seven signa tures are required to the Memorandum of As sociation. I do not recollect having seen the publication of these names. The public, asked to subscribe the capital, is entitled to have full particulars of the local promoters. 2. Although local direction is eminently de sirable, the Directorate mentioned in the pros pectus merely gives the names of absentees.

Neither does it state the qualification of direc tors in respect to paid shares. 3. Vendors’ consideration, in my opinion, ap pears to be ranch too high in proportion to the total capital; as, on proceeding to allotment, vendors’ capital is nearly half—i.e., £4,000 out of £8,300. Unless more than the minimum are subscribed, even with these shares called up to 10/-, vendors will be taking 40 per cent, of all dividends, £4,000 out of £10,000. According to the prospectus, the only consideration shown as having been provided by the vendors is the “contract.” Taken in relation to the estimated number of consumers, there is, prima facie, an over-capitalisation; that is, I find that the capi tal cost is loaded £20 per consumer before any tangible or revenue-earning assets appear. 4. The matter of preliminary expenses, such as advertising, registration, travelling, legal Ex penses. etc., is not mentioned as having to come out of the £4,000. If not, you must add these preliminaries to the sterile loading, and, call it what you will, goodwill, deficit, etc.—the effect is the same. 5. The acquisition of premises should be shown in the prospectus, whether freehold or leasehold, and the conditions under which the latter are acquired, stating the capital cost. 6. Consideration of the estimates stated to have been supplied by Messrs. Donoghue and Carter would appear to me to be obviously over stated, as the anticipated revenue from the sale of electricity, shown as £5,600, would mean an average of £28 per annum per estimated consumer, on the estimate shown of 200 consumers.

Then, taking into consideration the large con sumers, such as the Administration, the cost to the householder must be greater than the above-mentioned £28, which is an average. In these circumstances, we are going to either have a very expensive electric supply or else, as stated above, the figures are incorrect. Oper ating expenses, shown as £2,000, look low. But the figures have been furnished by experts and, under section 64 of the Companies Ordinance, they must accept full responsibility for their statements. Under peculiar local conditions, as ruling in this Territory. I should consider it very doubtful if there are any means of mak ing a valid estimate.

Reviewing the prospectus as set out, I would not, at this juncture, be a purchaser of shares.

The clearing up of the general vagueness of many of the matters as set out in the prospec tus should be done promptly and should be ad vantageous to the company.

If half of what our correspondent says is true, there is certainly a flavour of wild cat about this prospectus. The suggestion that the franchise is worth £4,000, in an £8,500 company, is fan tastic.