Eurodollars at Work

WESTERN EUROPE

In the 15 months since Washington put "voluntary" restraints on the flow of investment capital abroad, U.S. corporations have developed a vast appetite for dollars already in foreign hands. So far, 27 companies have borrowed some $525 million overseas, and this year they are consuming two-thirds of the world's long-term dollar loans beyond U.S. borders. One result: Western Europe has eclipsed Wall Street as the leading market for international bonds.

Strained Supply. The push overseas grew so strong at the end of March that it strained Europe's floating supply of dollars and several issues were scaled down or postponed. But by last week the rush had resumed. International Utilities, a U.S. holding company whose subsidiaries supply gas and electricity in Canada, brought out a $12 million issue. A subsidiary of Manhattan's Bankers' Trust Co., the eighth largest U.S. commercial bank, turned to the Eurodollar market for $20 million. Within the next few weeks, oil-producing Cities Service Co. expects to float a $20 million issue and drugmaking Chas. Pfizer & Co. a $15 or $20 million one.

By tapping Eurodollars, American industry can expand abroad without adding to the nation's troublesome balance-of-payments deficit. To do so, of course, even blue-chip firms must pay Europe's soaring interest rates, which lately have gone to 6 1/2% to 7%. The climb has been so swift, in fact, that at least nine of the last 24 U.S. corporate issues were selling below their offering price last week. Among Continental underwriters, the current morose joke goes: "Playing the bond market is no longer speculation because you're bound to lose."

To keep the interest bite as small as possible, an increasing number of U.S. companies have sweetened their bond offerings by making them convertible to common stock. Last week Bankers' Trust paid only 5% for 20-year debentures, and International Utilities' 20-year bonds came out at 5 1/4 because they can be swapped later for common shares. Conversions water down the value of shares owned by existing stockholders, but the average 1% that borrowing firms save on the interest rate can mean a $4,000,000 saving over the 20-year life of $20 million of bonds.

Unthinkable Terms. Even so, one irate stockholder has sued Standard Oil Co. (Indiana) for paying an "excessive" 5 3/4% rate abroad, arguing that the company should have ignored the voluntary restraint program because it lacks the force of law. Many foreign governments and European companies have been squeezed out in the borrowing crunch or have agreed to hitherto unthinkable terms. "This," says London investment banker Siegmund Warburg, "has stirred up considerable anti-American feeling." Despite such acrimony, more foreigners each year seem happy to hold their wealth in U.S. money.

This file is automatically generated by a robot program, so reader's discretion is required.