861.77/2214
Messrs. J. P. Morgan & Company to the Secretary of State
[Received August 27.]
Sir: Replying to your letter of the 18th inst.,35 addressed to Mr. Lamont36 and which in his absence, for a week or ten days, we are answering, we beg to advise that we have read with great interest the suggestions of Mr. John F. Stevens37 relative to the financing desired on behalf of the Chinese Eastern Railway, in the amount of $10,000,000. Gold.
We appreciate to the full the importance of this particular situation, but a question we have not been able to solve is the fair presentation of the matter to the investing public in such a way as would indicate the certainty of the interest payments on the bonds.
According to information taken from Millard?s Review, the results from the operation of the railway for the twelve years from 1903 to 1914 inclusive, indicated a net operating deficit in every year, and a combined operating deficit for such years of 182,000,000 rubles. The four following years reported a total net operating revenue of 83,000,000 rubles, but the showing for 1919, apparently, was most unsatisfactory, and that for 1920 is not available.
We also understand that under a contract made in October, 1920 provision was made for the issuance by the Railway to the Chinese Government of bonds to be secured by a first mortgage on the entire railway and rolling stock, the amount entitled Kp. Taels, 5,000,000. We would appreciate your advising us whether this arrangement was ever consummated as it would make even more difficult the sale of the proposed issue of bonds.
In view of the income statement which should be stated in the prospectus, we do not believe that the sale of the issue could be successfully undertaken unless there were to be pledged some additional [Page 603] security for the payment of charges, such additional revenue to be collected under such proper supervision and control as would convince the investor of the certainty of interest payments.
In this connection, we submit for your consideration the question whether the Chinese Government would be prepared to pledge the surplus revenues of all the Government railways in China, over and above the charges on the bonds issued for railway construction.
We should be glad to learn any views you may care to express regarding the feasibility of pledging such surplus revenues of the railways in China, and any later information as to income which may be at your disposal.
Yours very truly,
For the American Group