Transcript of one hundred thirty-ninth special meeting of Executive Directors, held on Monday, September 30, 1957 : South Africa - Fourth Transport Project

STRICTLY CONFIDENTIAL INTERNATIONAL BANK FOR 89488 foD RECONSTRUCTION AND DEVELOPMENT ONE HUNDRED THIRTY-NINTH SPECIAL MEETING Of EXECUTIVE DIRECTORS I 1, 11 Board Room lj International Bank Building !1 Washington, D. C. 1 1 Monday, September 30, 1957 I I I J The meeting was convened at 3:00 o•clock p.m., I Mr. Eugene R. Black, President, presiding • .I 11 11 l 11 'I 11 !I I I I II Ii II i 1, 11 !I 11  l' 2 STRICTLY CONFIDENTIAL Agenda Item Proposed L0 an to the Union of South Africa • • • • • • 3 I I; : 1 ; 1 i I ! . 1 I !  3 STRICTLY CONFIDENTIAL THE CH.4IRMAN: ----------- PROCEEDINGS It is very nice to see you all again after last week. I hope you enjoyed it. The first item of business is the proposed loan to South Africa. Before I call on any of the staff, I would like to state that this loan was presented to you at the meeting on September 12 and was approved in principle at that time. Then it was the intention to ma.ke this loan 1n conjunction with a public issue of South African bonds on the New York market and also in conjunction with an extension by seven commercial banks of a revolving credit. Unfortunately, events in the markets during the last week caused the bankers, Dillon, Read & Company, to decide to postpone the public issue of the $15 million of bonds. However, the revolving credit went through. That revolving credlt was stepped up from $10 million to $20 million, and so our loan plus the revolving credit would give them $35 million instead of the $50 million that we expected would take place. The necessity to postpone this issue doesntt in any way detract from the soundness of the loan proposal, so I recommend that you approve the loan as now proposed. The postponement of this issue caused some changes in the loan agreement, and these changes were explained in a brief supplemental report which was circulated on Friday, together with a revised draft of the Loan Agreement and a  4 STRICTLY CONFIDENTIAL revised resolution. Are there any questions on this? Mr. Hooker. MR. HOOKER: Mr. Chairman, on the private financing, it has been registered, has it not, at the SEC, and if the market improves do they intend to try and go ahead? THE CHAIRMAN: Yes, thatrs right. In this connection, I would like to offer a suggestion that we have thought about. we haventt thought it out thoroughly, but there is a great difference between an issue being registered and non-registered. In other words, suppose that we had agreed to lend South Africa $40 million and we hoped that the Market might take $15 million of this $40 million -- that is just what did happen -- and then the market would decide well ahead of time that they couldntt do it, and then we would be asked to make the entire $40 million loan. But this went further than that. The bankers were confident until the last minute that they could float this loan in the market, and they were so con- fident that they went through the registration with SEC. So it means now that if South Africa wants to come to the I market or if the market improves that they would not have to I go through another SEC registration. The suggestion that I wanted you to think about might be this: that we could state to a prospective borrower that if for any reason this kind of thing happened again that we, i the Bank, might be willing to take the part that was going to  5 STRICTLY CONFIDENTIAL the market, on the same terms that the bankers were discussing. To give you a concrete case -- and these are not the exact figures but this is just to show you what we are talking about -- we are proposing to make a $25 million loan to South Africa at 5-3/4 percent. The bankers were proposing to buy from South Africa $15 million worth of 5-3/4 percent bonds to be offered to the public at 99. The bankers would buy these bonds from South Africa at a price of 99, which is the offering price, less a conunission of -- I think it was 2-5/8 percent. Do you know, Mr. Callaghan? MRo CALLAGHAN: No, I canst confirm that. THE CHAIRMAN: 2-5/8 percent. So that the bankers wouldi ! buy these bonds, would have bought these bonds if the deal went through, at ~Price of 99, less 2-5/8 points, which is 96-3/8. Now, I am wondering if, prior to the loan being signed and agreement being reached, we could say to the borrowing 11 country: 1r by any chance at the last minute the narket won•t take this issue, we, the Bank, would. take over the contract." If we took over the contract, we would then have in our portfolio an issue of bonds which have been registered with SEC, and which would be salable by us as far as that was concerned, as far as the registration part was concerned. And we would also, if we did that, say that we would then have the right whenever we wanted to, to sell these bonds.  6 STRICTLY CONFIDENTIAL See my point? This is quite different from our making a loan of $40 million to South Africa and hoping later on to sell part of that loan, which we couldn't do as a public offering without registration, but in this case we would have in our portfolio a registered issue of bonds which would be perfectly salable. And we would get the benefit of any advance in the market. In other words, if the market happened to go up, we would have the right to sell them at any price we wanted to. If the rrarket didntt go up, we would own these bonds. They would be part of our loan. MR. THOROLD: wouldntt we sort of be on the bad side of the thing there? They are going to take it to the Bank and market if things go in the ordinary way, but if there is a really big slump, as in fact at the present momeotJ they are going to unload them on to us. l1 THE CHAIRMAN: It depends on bow you look at it. 1· In other words, the Board was perfectly satisfied that South I II Africa would borrow $40 million. We had no objection to ! that,, from a c1·editworthiness standpoint. Now, we could say I II that if the market would take the paper, all right; if it II didntt,, we would lend them up to $40 million. we didn tt say that in this case. we say we would join with the market. ' So we had no objection from a creditworthiness standpoint to their borrowing $40 million. This is a very unusual thing. This is quite an unusual  7 STRICTLY CONFIDENTIAL transaction, and what I am saying is that we should say that 1n the event this kind of thing did happen that we would be willing to make a commitment to go up to $40 million, but we would get it at that price rather than making the loan at par. MR. THOROLD: We should in fact be buying those bonds at below the market price, shouldn•t we? THE CHAIRMAN: We wouldnrt be buying them below the market price. We would be buying them maybe a little bit 1 1 above the market because the bankers wouldn tt be willing to I 11 take them. It would be a stand-by on our part. !I MR. THOROLD: You say we should then have the prospect i ii of selling them at a profit, but we should start with -- II THE CHAIRMAN: We would have a right to sell them at a Ii,, profit. I I MR. THOROLD: But we should be starting a point to the 11 bad, or whatever number of points it would be. 11 I THE CHAIRMAN: It depends on how you look at it. I MR. CALLAGHAN: Mr. Thorold ts point is that if the market wouldntt touch it at this rate that we would come in. MR. THOROLD: So from the point of view of a sort of, shall I put it, speculation on our part, where we might sell at a profit, we are really starting with a handicap. MR. DONNER: I do not see this point. Am I right in saying that hardly any of the loans of this Bank would be  'i 8 STRICTLY CONFIDENTIAL taken over by the market at the conditions and at the rates fixed on those loans given by the Bank? MR. THOROLD: In this particular case, of course, it is 5-3/4, and you say less 2-5/~; but in some cases the banks have taken them at a lower rate of interest than we are getting, haventt they? THE CHAIRMAN: I think they have, yes. Not often, though. MR. SOMMERS: You mean the public issue? MR. THOROLD: Yes. MR. SOMMERS: Sometimes it has been somewhat lower, yes., THE CHAIRMAN: But we knew what it was. MR. SOMMERS: But the investment bankers have taken it 11 \\ ii at a yield to the public a little bit lower, not their own ii price. I I THE CHAIRMAM: The point I am trying to make is this I other thing bas happened. We had a case -- I guess it was t ' Norway, wasntt it? -- where I think the same amount was involved, as a matter of fact. It was $25 million, and the market was to take another $15 million. And the nerket at that time wasn•t satisfactory, but the bankers knew it ahead of time, where they didn•t register the bonds, and so !I at that time Norway asked us to take the part that the bankers I might have taken if the market was receptive to it. Now, we I did that. We took the entire amount because the bankers ,I I I  9 STRICTLY CONFIDENTIAL couldn't take it. But that loan now that we have got in our portfolio, if the market came to a point where we could sell those bonds, we can•t sell them because they are not registered. We couldntt make the public Offering. Do you see my point? MR. THOROLD: Yes. THE CHAIRMAN: This is a very unusual thing. These bonds have been registered and gone through the SEC registra- tion, which puts them in a highly salable form, where if the market improves slightly we could then sell these bonds to the market. And I didn't say that we expected to make a profit. I said we should have the right to make a profit if the market improves. Thatts all I am talking abouto MR. THOROLD: Would it be our intention to give some sort of commitment in advance or simply, for instance, you might say today on this particular one to make them an offer to take it up at this price? What I am getting at is that I wouldn•t like to make a conunitrnent in advance. The bottom I might fall out of the market, and although we should be taking I !I up those bonds at no higherprice than we might already have taken our part, I don•t thiLk we ought to be committed to taking up those bonds at a price which might be completely out of line with the market. THE CHAIRMAN: I am not sure I made this clear. In this particular case, it is not serious as far as South Africa is  10 STRICTLY CONFIDENTIAL concerned whether they get this $15 million right now or later, but there might be cases where we were doing something in conjunction with the market where it would be quite serious and the borrowing country would want to get that money~ Therefore, the borrowing country would say to us, "we are perfectly willing to try to go to the market, 11 and they might find out ahead of time that they couldnrt go to the market. They would say, "Will you, the Bank, lend us all the money?" We did that in the case of Norway. In this case it didntt I work that way. The bankers felt confident that they could sel~ ii !1 these bonds, and we went ahead on the assumption that they '.j were going to be able to sell these bonds, and then they couldn't do it. Now, 1n the case of Norway we took our 11 'I 25 million and we took the other 15 million that was to go Ii 11 to the market, and we took those at par. Now, in this case, 11 if we had had a deal, we would have taken our 25 million at 11 11 par, and we would have taken the bonds from the market at I 96-3/8, which I say ia much better than taking them at par, j plus the fact that we have a marketable piece of paper. /i So if you say we are taking something the market wonrt take, 1' I agree with you on that, but it is a whole lot better to take something at 96-3/8 than at 100. In one case we are taking it at 100 and taking it at 3-5/8 points above the market, 1 /1 don it you see, plus taking a piece of unmarketable paper. I[ I MR. THOROID: I agree that might have been the case, but 11 11 I' 11  11 STRICTLY CONFIDENTIAL supposing the true market price at the moment is 90, for instance, just to take an extreme. Why should the Bank allow these people to have their money at a rate of interest which is out of line with the market? THE CHAIRMAN: Would you rather do that or pay par for it? MR. THOROLD: Why pay par? THE CHAIRMAN: Because they want their money, and we have approved the $40 million loan for the country. In this case they are not pressing us to take this share up, but in a good many cases it might be a very serious thing. MR. THOROLD: It might, but we havenrt promised them i $40 million. !! THE CHAIRMAN: we did not, no; thatts right. i ll I MR. THOROLD: We promised them 25, and of course we I l I I 11 have to stick to that whether our rate of interest is much I ! I J lower than the market rate or not. But when it comes to bavin~ i I 11 !1 to supply another $15 m~llion, however necessary it may be f'or I It them, I think we ought to be in a position of saying we are i I II p I moving 1n line with the market rate. I I MR. CALLAGHAN: I think the point Mr. Black has 1n mind is an emergency. It is really an emergency power, to be used only in emergencies. If we are to extend your point at the moment, then the loan to Austria should be made at some- thing higher than 5-3/4. If Austria went to the market today,  12 1 STRICTLY CONFIDENTIAL they might have to pay six on that thesis. I THE CHAIRMAN: I dontt think we would have to necessaril~ take them at the figure th.at the bankers were talking about, I but we could take them at a figure that could be agreed on. It might be somewhat lower than the bankers• figure. MR. THOROLD: I wouldntt mind that. I thought the I suggestion was we should enter into a commitment beforehand I that if something went wrong we would be the anchor which woul1 take it at the price which had been agreed with the market. I THE CHAIRMAN: As a matter of fact, they never had I fl II agreed. They hadn•t gotten that far. They were going to make I I 1 a market offering, and I am saying that is about what they I 1 I had in mind. We would have to make a deal with them on this I I I thing. As a matter of fact, the bankers had never made a deali 1 I, I I They hadntt gotten that far. They were waiting until the last j I minute to set a price. The point I am trying to make is whether or not we would be willing to make a proposal to a I able paper, or to take it at a lower price than we had made our loan at, because of the failure of the market to take it. The price would have to be agreed on. MR. THOROLD: I would be quite happy about that, as long as we don•t have to start by putting a floor at what we would take it at. Perhaps I misunderstood your proposal.  13 STRICTLY CONFIDENTIAL I thought we were going to say beforehand to the people that if something should happen, if this should break down, all right, we will take it at this figure. But if it is going to be that we will take it at a figure to be agreed on, I wouldntt mind. THE CHAIRMAN: What you are saying I still think doesn1t cover your point. we would still be taking it at a figure i 11 I\ the market wouldn1t take it at, dontt you see ? : MR. THOROLD: That might be so, but as I say the market 1 I[ might have fallen by 10 or 20 points, and I don rt want it to I be then that we should be bound by a prior commitment to take 11 it at only 2 points below the market. I ,I ,, ! THE CHAIRMAN: Mr. Hooker. I I MR. HOOKER: I think this is a veJ!Y interQatine pro- 11 II posal, and of course we have toyed around with it. At one I time we were sayl.ng to the underwriters, "You go ahead and j! make the issue and we will make a stand-by commitment for 11 50 percent of the issue." We were prepared to do that on 11 II several occasions, and the underwriters didn't seem to like 11 that approach. 11 11 THE CHAIRMAN: This is better than that. II I MR. HOOKER: This is better than that, and I think it I 'I is a very useful suggestion. Certainly if we make up our 'I ~inds in the Board that there is a useful project being I II undertaken by a country, and it cornea to 40 million, and we I 11  14 STRICTLY CONFIDENTIAL prepared to lend them 40 million, this way we are better off, we are in a better position, certainly, by not having to take the whole 40 million at par. Of course, we have to make this decision beforehand. If the country needs say 40 million for a useful project and we want to go ahead with it, and the private market is interested in financing part of it, it seems to me it ls a very useful thing to explore. MR. HOCKIN: Mr. Chairman, as I see it what you are really doing is not making a proposal, b.lt suggesting for our consideration the fact that if a country which intends to borrow from the Bank and the market together should go through the process of getting its securities registered, so that you could have a public issue, that this could in fact, if the Boat?d. should decide, give the Bank more flexibility in terms 11 ·1 of the way in which the Bank could pa~ticipate with the 11 'i market. I THE CHAIRMAN: We could negotiate with them at another , ,1 I I, price. II I I II MR. HOCKIN: And really the interesting point is this \ 11 f !1 enc 'ouragement which might be given to a prospective borrower 111< I' to ·~:through this process of' getting its securities registereJ, I I j, because by so doing it gives it a ce!lta in status in the I 1 market. It also gives the Bank more f'lexibility in dealing ! 1 with it. And you are not suggesting that we make a prior 1 I decision now that we will sort of enter into a stand-by  1 15 STRICTLY CONFIDENTIAL commitment with these people, but that you are suggesting that if the circumstances were similar to what we have now that the Bank might consider this kind of participation in a way which would, as you have said, give more flexibility to its own portfolio and at the same time give a certain sort Ii jj of underlying strength to the public flotation of the paper. iJ THE CHAIRMAN: Thatts right. 11 11 MR. HOCKIN: As I understand it, you are not suggesting ! that the Bank should decide in advance in general principles that it should enter into commitments of this sort. It would 1 vary with each case. i THE CHAIRMAN: Thatts right. ,I MR. HOCKIN: And when you say take it up at the same I i basis as the underwriters were prepared to take it off the 11 hands of the country, I presume you mean in each case the 11 /1 Bank would look at it and decide whether the Bank thought 11 ,1 this was an appropriate kind of piece of paper to get involved II I in, and under those circumstances I agree with Mr. Hooker , that it is a very interesting proposition, because I think it i I! has this ad vantage: It does bring in a more public way the j investment of private capital in underdeveloped countries, ' which after all is one of the purposes of the organization, and I think it is well worth considering fUrther. MR. MEJIA-PALACIO: Mr. Chairman, I think it is a very interesting proposition, but I am 1n accordance with  16 STRICTLY CONFIDENTIAL Mr. Thorold. Are you going to put a floor on this issue? You said 96 percent. O.K. But maybe they offer the bonds in the market at 94 or 90, and the market would take it, so we dontt lmow what price we are going to put on it. MR. HOCKIN: Mr. Chairman, on that point I think once again it must be the Bank's judgment as to whether what has happened is that for some perhaps temporary reason the market is tighter than theunderwriters had expected. I think we can trust most underwriters not to get involved 1n a really big mistake 1n judgment, one that is going to be very lengthy. 1 They wontt miss the market by 4 points, I wouldntt think, '1 and I don tt think that the Bank is going to make the same ~l ri mistake itself. And I donrt think we want the Bank to get II involved in a situation where they would come in as Santa I II Claus and say, "You have made a mistake, but we will bail I I i 11 I you out." But it might be that in the Bankts estimation I this particular week or this particular month was a bad one an, I I· that we expected the market to tum up again and that we would I 11 I be able to dispose of the securities in a later period. In 'I a time like that, if those circumstances prevailed, then I think the Bank should be able to consider this sort of operation. I am not sayiog every time we would think that circumstances warranted it, but I think it is an interesting proposition. MR. THOROLD: I am sorry, but I think Mr. Hockin is  17 STRICTLY CONFIDENTIAL suggesting that this Board is more able to judge than the underwriters in the New York market. I wouldn•t like to think it was capable of doing so. MR. HOCKIN: Maybe I have more confidence in your I I ability, Mr. Thorold. I I MR. LIEFTINCK: There are two features to your suggest ion! I i which make me a little bit hesitant. First of all, I know that up until now the Bank has always had kind of standard conditions, which as a matter or fact might be changed from time to time, and as I understand your suggestion the Bank would be willing to take these South African bonds 1n fact at less favorable conditions than the Bank up until now has been financing. THE CHAIRMAN: Not at all. Not in the slighest. You q II mean the security, and all that? MR. LIEFTINCK: Take them at 96. THE CHAIRMAN: More favorable. MR. LIEFTINCK: More favorable to the Bank but less favorable to the borrower. THE CHAIRMAN: There would be no difference in the security or that part of it at a11. MR. LIEFTINCK: Wouldntt it mean that this would create uncertainty at what conditions the Bank at any time or this particular time would be willing to finance borrowers, because now you are switching from standard conditions to  18 STRICTLY CONFIDENTIAL conditions to be fixed from case to case. THE CHAIRMAN: Well, the South African Government was perfectly willing to make a deal with the market on less favorable terms than the Bank, because the bonds were going to be sold publicly. They were perfectly willing to do it. They would be willing to do it today. So that the South African Government, if we were to go to them today and say, "we are sorry you couldn tt sell your bonds in the market. We know you would like to get that money. You have the bonds registered, and in ord.er to help you we will take the bonds at an agreed on price" -- that ts all we would be saying, and they would be happy as they could be. MR. LIEFTINCK: Fron the commercial point of view, I dontt see any objection. On the other hand, the Bank, being the kind of institution it is, we have as far as I know always applied specific terms to all our borrowers. Terms changed from time to time when the market interest rate went up or down, but if we enter into your suggestion I wonder whether that wouldn't mean that each specific case would be dealt with on its own merits, and we would have no standard conditions anymore. I dontt think that you object to that, but I say we should realize we enter a new phase in our I I activities. THE CHAIRMAN: Suppose the South African Government had 1 I .I i I 11 come to us over the weekend and said, "we desperately need thi~ I ij II II  19 STRICTLY CONFIDENTIAL $15 million. We were prepared to sell this $15 million worth or bonds in the market. They were registered. We are prepared to sell these bonds at 96, 5-3/4 percent bonds. Now at the last minute the bankers say they canrt do it. Now we want the $15 million from you." Which would you prefer give it to them at par or buy the bonds at 96? Thatrs all I am saying. MR. CALLAGHAN: Mr. Chairman, there is one point in this. I think Mr. Lieftinck is agreeing that we could well study , this proposition further, but there is this feature to be remembered, and it is a feature that applies 1n this par- ticular case, as I understand it, although I donrt want to speak particularly to the South African case, but when a country comes to the Bank it generally comes for a specific amount. In the South African case, they wanted to raise 11 $50 million, and the Bank said, Go to the market for as much ' as you can get." That is quite normal practice. In the negotiations that rollowed, it came out at 25 rrom the Bank, 15 from the market, and 10 from the consortium of banks. or the three, the one that fell down was the market. I think it does raise, as Mr. Lieftinck has just posed the question, that 1n such cases I am not sure that it is a very happy I situation for the Bank to be coming 1n at 96-3/8. However, II I certainly agree that the thought is well worth study. 11 i 11 I envisage it as an emergency power only, and in the 11 I  20 STRICTLY CONFIDENTIAL circumstances as they developed in the last few days it would I. have been very useful to have had that power. Ther~is I also, of course, to be examined the question of where the Bank stands in relation to the members of the underwriting group in the event that it is going to exercise a power· of this nature. However, I think these are only things that can be determined as each case arises, and I would like to close on the note that I agree it could be studied further, and repeat that I envisage it as an emergency power only. THE CHAIRMAN: I would like to say this. This is not a proposal in any way. We are just talking. We haventt thought this out, and I am sure we will find some other bugs in it we haventt even thought about. As I say, this is in no way a proposal we are making at all. The reason that South Africa might be perfectly willing to sell these bonds to us at 96 is that the bonds are registered. They do want the bonds put on the market,and we would like to see them put on the market as soon as the market would justiry it. They would be 1n shape to do that. There would be less chance of our doing that if we bought those bonds at 100 than if we bought them at near what the market might take. So that I dontt think the South Africans would object to thato As a matter of fact, the South Africans asked me did I think it was a good. I i I idea for them to tell the bankers that whenever the market came to this figure that they, the South Africans, would be  21 STRICTLY CONFIDENTIAL prepared to go to the market. They still want to sell these bonds, and they asked me did I think it would be a good idea for them to tell the bankers that whenever the market got to this point that they, the South Africans, would be prepared to come to the market, which shows their desire to do this, and if we got them at a price reasonably near the market, with some slight improvement, we could then do that. We couldn't do that if we took the bonds at par. There would be less chance of doing it if we took the bonds at par·. We have to pay a commission. The people have to get a connnission to do this, and we would have to have room to pay this conunission. MR. MACHADO: Mr. Chairman, since we are exploring new methods of doipg business -- and I am happy to see any innovation in the Bank how would the standard provision on end-use supervision apply in a case like that? THE CHAIRMAN: It would be part of the same project. MR. MACHADO: Then my next question is: What will happen if South Africa is unable to float this other ; : 1 $15 million on which they were counting to see this project 11 through? I THE CHAIRMAN: They don •t have to have it right now. I I That is just the point I am worrying about. The case may i arise where they would have to have it now. I I I MR. MACHADO: In other words, I begin to question whethe1 I  22 STRICTLY CONFIDENTIAL it is wise to lend them $25 million if in the long run they are going to be short $15 million. THE CHAIRMAN: We are not worried about that in this case. It may well develop that we would be worried in some cases that might happen, but not 1n this case. MR. THOROLD: I suppose, Mr. Chairman, when we say the market can't do this that it is just a question of price? THE CHAIRMAN: Not necessarily. It might not be a question just of price. It might not be. I have seen market conditions arise -- and this was a pretty hectic week last week -- where people would prefer not to do it at anything that looks like a reasonable price. It isntt always a quest1onof a point or two. MR. THOROLD: I can quite see that. Where a country really needed it for the good of the project and it had to have the extra fifteen, and conditions were such that there was no chaJ'Ce of getting anything from the market on any X terms or any possible terms, then I can quite see the advantage from our point of view of taking it over. I mean going in on an agreed price. But what is just troubling me is the idea that the market might be quite able to swallow this at, say, 93, taking a figure out of the hat, and that we should have committed ourselves to taking it at 96. THE CHAIRMAN: I still say which is better, 96 or 100? MR. THOROLD: But we don't have to take it at 100. II II  23 STRICTLY CONFIDENTIAL THE CHAIRMAN: We may have to if it would jeopardize the project. That•s what I am talking about. The Board here had no objection to South Africa borrowing $40 million, and we 1 have approved that figure. It may arise that it would be essential for them to have the money right now. This is a very unusual thing. This isn•t going to happen too often. This is quite unusual. The only reason I bring it up now is it just has happened here, and it is fresh in our mind. MR. VIIG: It is only the case of this joint operation I that this is suggested at all. I I THE CHAIRMAN: Thatts right. r ,1 MR. VIIG: I think, Mr. Chairman, that this question is , 11 1: ve'f7 worth considering. I only mention one little question II 'I that arises in that connection, and that is how are we going to book it in our financial statement? Should we add it to i i II the regular lending or should we take it as temporary investment? i I THE CHAIRMAN: It would just be part of the South AfricanI I loan, thatts all. 1\ I MR. SHOAIB: If they hadn't gone to the market, we would I probably be willing to lend them all of the $40 million. They took our advice and talked to us and went to the market. The mere fact of going to the market should not put them in I ,I 11 a more disadvantageous position. I THE CHAIRMAN: They still want to go to the market. I 11 I I  24 STRICTLY CONFIDENTIAL MR. SROAIB: My point is if they are willing to sell in the market at 96-3/8 they should be free to do so, but if they would have a Bank loan at 93-3/4 I think we should be able to go ahead with that. THE CHAIRMAN: I think this should be a choice that they make. ii I 11 MR. SHOAIB: That Ts what I mean. II MR. LARRE: For clarification on one point, what is the II ii scope of the accent on registration? Would the Bank be ~l l allowed to sell such issues at 99, or could it sell it at 11 t: :j 96-3/8? :1 i THE CHAIRMAN: Sell at any price you want to. MR. I.ARRE: If the SEC has approved the issue, can the i Bank sell it even under the price which was contemplated at the 11 1! start? I MR. SOMMERS: There is a false assumption here, I l Mr. Chairman. You said at the beginning that this issue bas i :I been registered. That isn •t quite accurate. A registration l\ statement bas been filed, which did not contain presumably I',\ either the coupon or the price, so that there are quite a few J! things that would have to be worked out technically in connection with this kind of thing, but presumably it would be i [/ necessary to fill in a price at some stage, and if you Ii I' couldn •t sell it at that price you might have to file an amendment to the registntion statement to change the price.  25 STRICTLY CONFIDENTIAL THE CHAIRMAN: But the price comes in at the last minute. The registration statement is a very involved, complicated thing, and that bas been carried out except the price and the coupon. At the last minute you would have to amend it to fix the price. MR. IARRE: So that means in one case at least the operation would be to undercut the commission of the private bankers, if they were buying this issue at 96-3/8 and then selling it at 97 or 98· THE CHAIRMAN: We are not going to undercut the bankers, and we will do everything on the face of the earth to get the bankers to take part of the loan. We are not going to under- cut them at all. We are doing everything possible to get the bankers to take part of these loans. MR. SOMMERS: I think the important thing, Mr. Chairman,, is if we are going to take something with the implied under- standing that we are going to try to sell it publicly we have to have a margin which will enable us to pay the same kind of a commission to bankers who will do that selling for us that they asked in the first place. THE CHAIRMAN: We don•t sell the bonds. We sell them I I 'J to the bankers and give them a commission. That rs why we !j :1 have to give that commission and get them at this price. 'I MR. lARRE: Maybe I misunderstood because I am green. I think that it would be very good for the South Africans if  26 STRICTLY CONFIDENTIAL they are willing to do it. The only reservation I have is if it becomes a standard practice in the Bank we would have to explain to any prospective borrower that we are willing to lend $40 million, and if they contemplated to issue bonds for $60 million we would not be willing to take them for them, because if there is an assumption that when a plan of financing bas been approved by the Bank that the Bank is willing to take the part which could not be floated, then we could run into misunderstanding with the borrower. Just for clarification, when a loan is approved, it is approved for the amount that the Bank is willing to lend, and if anything I happens with the market there is no commitment from the Bank I to come and help the borrower? I THE CHAIRMAN: Yes. Can we go ahead with the meeting? I just threw this out I on the table, and we haven•t thought it out. As I say, we will probably find some other reasons not to do it, but I I thought while it was fresh in my mind I wanted to mention it ! to you. If there is no discussion of the $25 million loan to South Africa, may I have a motion to adopt the revised draft resolution? {Upon motion duly made and seconded, the revised draft 1•esolution was adopted.) MR. CALLAGHAN: Mr. Chairman, the South African Governmeqt, I I 27