Conversion of Loans

Conversion of Loans


the substitution of new state loans for loans made earlier so that the terms of credit are extended and the rate of interest is changed, usually reduced.

In the capitalist countries conversions take place when there is an excess of loan capital. The purpose is to reduce budget expenditures for the state debt. Conversions do not touch the interests of large bond holders, who are often given monetary compensation and tax privileges. After World War I a loan conversion was carried out by the government of Great Britain in 1932; it changed a 5 percent war loan in the amount of £2.1 billion to a 3.5 percent loan. Large-scale loan conversions took place during the economic crisis of 1929–33 in Italy and France as well. Germany resorted to a loan conversion during its preparations for World War II.

In the USSR, loan conversions have been used to raise the purchasing power of Soviet money and to mobilize additional capital for financing the national economy. They are carried out under conditions that make it possible to protect personal savings lent to the state. The loan conversion in 1936 was carried out concurrently with issuance of the State Domestic Loan for the Second Five-year Plan (fourth-year issue). Bonds for state loans floated by public subscription at earlier times were replaced by bonds for this loan. As a result of the conversion the term of the loans was lengthened from ten to 20 years and the interest rate was reduced to 4 percent.

In 1947, after the monetary reform, a loan conversion was carried out because much of the state debt had formed during the war years, when the purchasing power of money had dropped. The monetary reform meant that this debt would have to be repaid in full-value rubles. The bonds for the 11 loans being converted were replaced by bonds for the new state 2 percent loan of 1948, which was issued for 20 years using a ratio of three rubles in bonds for loans issued earlier to one ruble in bonds of the new loan (under the monetary reform, old money was exchanged for new at a ratio of 10:1). At the same time the freely circulating state domestic lottery loan of 1938 was converted. Bonds for this loan were replaced by bonds of the new freely circulating state 3 percent domestic lottery loan. This was done at the times established for exchanging cash; the ratio was five rubles in 1938 state loan bonds to one ruble in bonds of the state 3 percent loan.


References in periodicals archive ?
The government said that it was planning to change consumer credit laws to enforce conversion of loans denominated in Swiss francs into euros.
This will bring Titanium s interest in Paragon on a fully diluted basis (allowing for the conversion of loans to Ordinary Shares) below 30%.
In case of rejection by the Shareholders' Meeting of the eleventh resolution authorising the possible conversion of loans granted since 1 January 2013, additional interest of 10% would apply to the April 2014 loan.
The sale is targeted to close in the fourth quarter after a period allowing for the conversion of loans being sold to SpringCastle.
Based on lication under the Companies (Issue of Capital Rules), 1996, the SECP granted roval to two listed companies for issuance of further capital through conversion of loans from directors.
The banks agreed to the loan restructuring plan last year, but it ran into trouble over the conversion of loans of Rs75 billion into equity.
The conversion of loans into equity and outstanding interest will rid the corporation of the heavy interest burden and liability to repay the loan.
The conversion of loans into equity and interest outstanding thereon will rid the Corporation of the heavy interest burden and liability to repay the loan.
News about the possible conversion of loans to Avtovaz into shares may trigger a negative reaction on the market, as the current shareholdings in the carmaker would markedly shrink.
The planned Listing will follow the completion of a placement to leading UK and US institutional investors and conversion of loans by Norwood Abbey into equity in Norwood Immunology.
For loans in Swiss francs and Japanese yens the Bank has a programme aimed at conversion of loans balance at the rate of the Central Bank of Russia as of the date of the deal.
The equity percentage of TCIL shall go to 49 per cent which amounts to conversion of loans to equity to the extent of Rs.