No. 322.
Mr. Beardsley to Mr. Fish.
Cairo, December 13, 1875. (Received January 17, 1876.)
Sir: The financial features of the operation by which Egypt sells to England her canal-shares are interesting.
The English government gives £4,000,000 for 176,602 shares of £20 each, which belong to the Egyptian government, and Messrs. Roths-child are to pay the money immediately. These 176,602 shares are a part of 400,000 shares of £20 each, constituting the original capital of the company, but they have been diminished in value by a renunciation on the part of Egypt of any claim for dividend up to the year 1894. This renunciation was made by the Khedive in 1869, in virtue of a convention passed between himself and the canal company for the purchase of certain rights from the company. The coupons for twenty-five years were detached from the 176,602 shares, and the company issued 120,000 “obligations” against these coupons, which are now running. These obligations are entitled to all sums accruing to the 176,602 shares up to [Page 598] 1894, but their value is lessened by an annual sum for a sinking-fund sufficient to redeem all of them by 1894. At the close of that year, therefore, the last obligation will have been drawn and paid off, and the 176,602 shares will be entirely free, and will enjoy whatever dividends the company are then able to pay. To compensate England for the loss of the detached coupons, Egypt agrees to pay her 5 per cent. on £4,000,000 until 1894, when the shares will begin to yield dividends again.
The Khedive still retains important claims upon the canal, as is but just that he should, in view of the great sacrifices Egypt has made in behalf of the great work, which has proved of but little advantage to her. Seventeen million pounds is a low estimate of what the canal from first to last has cost Egypt. Extraordinary concessions and rights were originally granted to the company by Said Pasha, which Egypt in self-defense has been compelled to take back, paying heavily therefor in every case.
The Emperor Napoleon, to whom various disputed questions were referred as arbitrator, decided that Egypt should pay an indemnity of £3,360,000 to the company for taking back certain concessions, which had been granted to it for nothing. The fresh-water canal from Cairo to Suez was constructed at great expense to the Khedive. The concession for this work was originally granted free to the canal company and brought back for £400,000, when it could not otherwise raise money.
The cutting off of twenty-five years’ coupons from the shares that England has bought was the last of the Khedive’s heavy sacrifices for the benefit of the company. The company needed money to continue its work; no more could be borrowed in Europe. It again appealed to the Khedive, and succeeded in inducing him to purchase various rights which had been conveyed in the original act of concession. The company ceded its rights to navigate and levy tolls on the fresh-water canal, and the right of fishing in the Suez canal and the lakes it traverses, as well as all special privileges connected with the working and maintenance of the fresh-water canal; and for these concessions it charged £800,000. It also ceded to the government, for £400,000, all the establishments which it possessed on the isthmus, such as hospitals and their furniture, and its magazines and establishments at Boulac and Damietta. To raise money to pay this £1,200,000, a fresh loan not being expedient, the Khedive cut off twenty-five years’ coupons from his shares, beginning with the coupon payable on the 1st of January, 1870. Having accepted the coupons instead of money, the company capitalized them by issuing against them 120,000 “obligations,” as stated above, which were to receive the 5 per cent. interest borne by the coupons. As the Khedive could not pay the £1,200,000 in money, 10 per cent. was charged him until the company realized from the obligations, and it is stated that the amount he actually paid was over £1,600,000.
Thus Egypt has made great sacrifices in behalf of the Suez Canal, sacrifices out of all proportion to her interest in the work and her resources, and she alone has reaped the fewest benefits from the success of the great work. She has lost all her transit-traffic, which was very heavy and a source of great revenue to her railways as well as to the port of Alexandria. The canal passes through an arid desert and is of no advantage whatever to local commerce. The political importance of Egypt as the highway to the East has, without doubt, been increased, but this is a doubtful advantage, as she is only too liable to be made the foot-ball of European diplomacy and a perpetual bone of contention.
But for Egypt’s sacrifices the canal would never have been finished, [Page 599] and it is but just that she should retain a predominating influence over the canal.
The Khedive is still entitled to 15 per cent. of the excess profits after paying the statutory 5 per cent. on the shares, and owns also 2,500 founder’s shares which also participate in these surplus profits. He owns jointly with the company large tracts of land all along the canal, and finally the whole property reverts to him at the expiration of ninety-nine years from the date of the company’s concession, about eighty years from now.
The Khedive’s government thus remains the preponderating influence in the affairs of the canal. England now possesses an important interest in the original capital of the company; but out of a capital which has to be paid off out of the profits of the company before the expiration of the lease, amounting to about £13,000,000, or, according to some estimates, nearly £16,000,000, she has only what is equivalent, £3,532,000, the par value of the 176,602 shares. To give her complete control of the canal, however, she has only to buy the balance of the 400,000 shares, say 223,398 shares, as only the holders of the original 400,000 shares have the power of voting at the meetings.
The value of these shares to England is not to be measured by a money standard entirely. The transaction is significant of the fact that the influence of France in Egypt has given way to, and been in a great measure supplanted by, that of England. France has only herself to blame for not being the owner of these 176,602 shares to-day, as they were first offered to her on far more favorable terms than Egypt finally made with England. On November 12, the French house of Dervien & Co. were asked to negotiate the affair, forty-eight hours only being given for consideration.
The Egyptian government offered 10 per cent. for the nineteen years during which the coupons were detached. The next day, November 13, 11 per cent. was offered by the Egyptian finance minister. Messrs. Dervien & Co. submitted the operations to a group of Paris bankers, who listened to, debated, and rejected it. The Egyptian government extended the time to the 14th November, and another group of the leading Paris bankers was invited to co-operate, but with no success. On the 19th November, the representative of Messrs. Dervien & Co. at Alexandria telegraphed to Paris that the Khedive did not wish to sell his shares; that he only desired an advance of 85,000,000 francs for three months, guaranteed by the deposit of his shares, and the transfer of 15 per cent. of the subsidy which the Suez Company allot to the Egyptian government. If at the end of three months the repayment was not made, the pledge became the property of the lenders.
Messrs. Dervien & Co. accepted the proposition on condition that the financial groups at Paris would support them. They, however, seemed to have received no support or encouragement whatever, and the time for ratification expired on the 26th November, at 12 o’clock. In the mean time England was not ignorant of the situation, and was kept fully informed by telegraph by General Stanton, her agent and consul-general in Egypt, of the stage of the negotiations with the French bankers. On the final failure of the negotiations England was prepared to purchase the Khedive’s shares, paying therefor the market-value, 600 francs, instead of the par value, 500 francs, and accepting 5 per cent., instead of 10 and 11 per cent. offered to the French bankers.
England has thus treated Egypt fairly and justly in this transaction, while at the same time she has made a most advantageous arrangement for herself, both politically and financially. Egypt has done exceedingly [Page 600] well, as she sells for £4,000,000 what can produce nothing for nineteen years. This sum relieves her of all present financial embarrassments, lifts her out of the hands of money-lenders, and gives her a chance to place her finances in the hands of men who can put them in order.
I will close this dispatch with a statement of the different kinds of bonds and obligations of the Suez Canal as near as I can obtain them. First, there are the 400,000 shares of original capital of £20 each, then 333,333 obligations of £20 each, bearing interest at 5 per cent., then 200,000 thirty-year bonds of £4 each, redeemable at £5, and bearing 8 per cent. interest, and finally 400,000 bonds of £3.85 each, at 5 per cent. interest, issued for the consolidation of unpaid coupons.
I am, &c.,
Vice-consul General, in charge.