825.6374/1144

Bases of a Possible Plan for the Reorganization of the Nitrate Industry 63

[Translation]
1.
The establishment for a period of ten years of a tax of 25% on the net profits of a Sales Corporation which will be formed.
2.
All of the Prior Secured Bonds shall be considered, without distinction, to have a preferential right in the profits of the industry.
3.
The three millions in cash loaned by Guggenheim Brothers in December 1931, in accordance with the plan of stabilization, shall receive equal treatment with the Prior Secured Bonds.
4.
The question of the Prior Secured Bonds shall be settled previously recognizing them as a fixed charge, a low rate of interest and an amortization—which shall be paid when profits are obtained, or alternatively a higher interest the payment of which as well as the amortization shall be subject to when profits are made.
5.
Plants shut down and concessions or port facilities not being used shall be exempted from the tax, and the industry shall not be charged any other tax on profits, such as those provided on the service of debts or dividends on shares which are paid from profits.
6.
The industry shall be permitted to obtain local currency at the export draft rate of exchange.
7.
The Government will cancel its Secured Bonds and any other claim it might have against Cosach and its subsidiaries and these, in their turn, will renounce any claim they might have against the Government.
8.
In consideration of the concessions indicated, on the part of the Government, the holders of Secured Bonds will be asked to accept the cancellation of their Secured Bonds as an obligation of Cosach, on the basis that the balance of those bonds would be assumed by the companies where they originated as a private debt of theirs.
9.
In consideration of the concessions of the Government and of the producers holders of Prior Secured Bonds, the other creditors must reduce and adjust their credits to where it may be necessary in order to place the industry on a basis of reasonable capitalization.
10.
Meanwhile the foregoing arrangements are being negotiated, the Sales Corporation will be organized in order to begin operations on July 1, 1933.
11.
The Sales Corporation will have in its hands all Chilean nitrate and iodine and will be administered by the Chilean producers, subject only to the supervision of the Government and regulations necessary to maintain good order.
12.
The Sales Corporation will take charge on the first of July of pending credits abroad of nitrate and iodine.
13.
Cosach and its subsidiaries will deliver to the Sales Corporation a sufficient quantity of nitrate and iodine in Chile for shipment as a sufficient guarantee of the credits assumed by the latter.
14.
Furthermore, Cosach and its subsidiaries will deliver a quantity of nitrate and iodine in Chile as a capital contribution.
15.
The right to the present charge of sixty pesos gold will be transferred to the Sales Corporation, duly ratified by appropriate legislation, or better a new charge of 45 pesos gold and the holders of prior secured bonds will be offered their exchange for new bonds whose terms will be described further on.
16.
The said charge will be collected and retained by the Sales Corporation on all nitrate extracted and shipped by Cosach and its subsidiaries.
17.
The foregoing charge will be placed on the basis of revenue and will be collected provided that in any year the industry has the capacity to pay it totally or in part, and a commission will be appointed formed by an independent auditor of the Company and two members appointed by the trustees in London and another by the trustees in New York, of the new bonds, the vote of the majority deciding whether the industry has the capacity to pay.
18.
The Sales Corporation cannot dispose of any distributable profits until the fixed service or the income service of the new bonds is paid, this provision no[t] affecting the associates who are not successors of the properties which now belong to Cosach and its subsidiaries.
19.
During the period of stabilization which is fixed at five years, sales quotas will be distributed between Cosach and its subsidiaries in accordance with the percentages fixed on January 7, 1933, the percentages assigned to the independent producers being reduced pro rata.
20.
After the five-year period of stabilization, the quotas will be distributed on the basis of economic productive capacity.
21.
The new issue of prior secured bonds will have a fixed interest of 4% and an amortization of 2%, the payment of the amortization being subject to the profits available at any time; or 6% of interest and 2% of amortization, the payment of both of which being subject to whether there are profits available.
22.
There will be formed three, or possibly four, new productive units grouping the producers geographically: one in Tarapacá, another [Page 182] in Tocopilla, and a third in Antofagasta and Taltal, the latter group being subject to division into two.
23.
The Liquidating Commission, together with the Superintendency of Nitrate, will make a study in order to determine the recoverable values of these three groups. The result of this study will be the basis of the capitalization of each group, the capital being divided into 75% of income bonds and 25% of preferred shares, and, moreover, there could be made a reasonable issue of common stock for future values.
24.
The Liquidating Commission will fix the capitalization and the producing groups prior to January 1, 1934. Immediately it will be presented to the creditors and shareholders so that they may reach an agreement with respect to the distribution among themselves of the capital, prior to June 1, 1934.
25.
If the majority of the creditors by that date have not submitted a plan of distribution they will be required, through Chilean legislation to be enacted at that time, to submit their claims to an international committee of arbitration.
26.
The new producing companies, and the old ones meanwhile the former are being organized, will consign their products to the Sales Corporation at the actual cost of production, plus a surcharge of 1.50 dollars per ton to take care of reserves for replacement and depreciation of machinery and plants, and when the said reserves have reached a sum in excess of the said necessities, that excess can be transferred to distributable profits.
27.
The balance of profits will be obtained by the producing groups for their participation in the profits of the Sales Corporation, after the participation of the State has been paid and the service on the Prior Secured Bonds has been made, as has been established.
28.
The president of the Sales Corporation will reside in Chile and the different producing groups will have adequate representation on the Board of Directors in order to intervene in those matters which affect their interests.
  1. Copy transmitted to the Department by the Ambassador in Chile as enclosure No. 6 to his despatch No. 1428, April 15; received April 24.

    Marginal note states: “No one acknowledges authorship of the following plan. But it is a product of conferences between the Guggenheim representative and members of the Liquidating Commission and is being discussed with the Minister of Hacienda. Presumably it would be acceptable to the Guggenheims if not modified in any essential feature. No progress has been made toward its adoption except as indicated in Enclosure No. 7 [not printed] of this despatch.”