Salvador of the Twentieth Century

by Percy F. Martin

1894: A company called the Central American Public Works Company was registered by Mr. Mark J. Kelly in London, and Mr. Kelly was associated with Mr. Scherzer in carrying out this contract, and in the month of April a concession was obtained from the Government under which the contract of 1891 was cancelled. The Central American Public Works Company undertook to complete the line to Santa Ana; to build a branch from Sitio del Niño to San Salvador (twenty-four miles), together with a deviation of one and a half miles at the port of Acajutla; to give the Government £70,000 in fully-paid ordinary shares of the company when issued; and to redeem the loans of 1889 and 1892. The Government, on its part, agreed to hand over to the Company the whole of the railways for a period of ninety-nine years, and to guarantee the Company for fifty years a net annual profit on working the railways of 6 per cent. upon the sum of £800,000, secured by a charge of 10 per cent. on the import duties.

A change of Government took place almost immediately afterwards, and, owing to the differences which then arose between the Government and the Company, the concession was declared void.

But in December a supplementary contract was entered into between the Company and the new Government, by which it was agreed that—(1) The £70,000 of shares of the Public Works Company were to be delivered to the Government by May 31, 1895 (this was done, and the Company took possession of the completed portion of the line and commenced the construction of the remainder); (2) the duration of the concession was shortened from ninety-nine to eighty years; (3) the guarantee was reduced from £48,000 a year to £24,000 during the construction of the line to Santa Ana, £36,000 during the construction to San Salvador, and the full £48,000 was not to be paid until the railway was entirely finished.

1898: In this year a new company, called the Salvador Railway Company, Limited, was formed to take over the concession from the Central American Public Works Company. Proposals were laid before the holders of the 1889 and 1892 loans to convert their bonds into mortgage debentures of the railway company. Some of the 1889 bondholders, however, declined to signify their adherence to the scheme, and it was thus found impossible to arrange for the release of the mortgage on the first section of the railway. The Central American Public Works Company had, moreover, undertaken to deliver to the Government all the bonds by December, 1898; they therefore approached the Government with the object of securing further legislation in order to get over the difficulty. In this they were not at the time successful, and the Government declined to remit to the company the sum due under the guarantee for the half-year ending December 31, 1898. The funds for the payment of the February and August, 1898, coupons on the 1889 bonds were sent by the Government direct to the London and South-Western Bank. The November 1897 drawing and May 1898 coupons on the 1892 bonds, and the July 1898 drawing and February 1899 coupons on the 1889 bonds, were not paid.

1899: On February 8 of this year a further contract was entered into between the Government and Mr. Kelly, representing the Central American Public Works Company, of which the following were the principal provisions: (1) The company was to hand over to the Government for cancellation the outstanding 1889 and 1892 bonds (in round figures amounting to £725,000) within six months from the date of ratification of the contract by Congress. The company might, however, leave outstanding £60,000 of the bonds if they could not make delivery of the whole of them, but on these they were to pay on their own account the same interest (6 per cent.) and amortization (2 per cent.), as the Government was under obligation to do. (2) The Government was to pay the company for eighteen years from January 1, 1899, a fixed annual subsidy of £24,000 in lieu of the previous guarantee, and to hand over all the railways free of charge. The subsidy was to be secured on 15 per cent. of the import duties, in respect of which the Government was to issue special Customs notes. These notes were to be handed to a bank named by the company, who were to sell them and collect the proceeds.

The railway company engaged themselves to complete the line to the Capital by June 30, 1900. If the bonds of the external debt were not handed over within the period stipulated, the Government was to have the right, subject to existing hypothecations, to take possession of the railways.

In April, 1899, an agreement was entered into between the Council of Foreign Bondholders, acting in conjunction with the Committee of 1889 bondholders, and the Central American Public Works Company, for the transfer to the Salvador Railway Company of the railways and concessions held by the Works Company, including the subsidy payable under the contract of February 8, 1899, on such terms as might be agreed between the Works Company and the railway company. The railway company were to issue (1) Prior lien debentures to the amount of £163,000, forming part of a total authorized issue of £250,000, and bearing 5 per cent. interest and 1 per cent. accumulative sinking fund, to be applied by purchase or drawings at par. Such issue to be for the purpose of providing the funds for the completion of railway, repairs, working capital, and expenses; (2) 5 per cent. mortgage debentures to the amount of £660,000, to provide for the cancellation of the outstanding bonds of the 1889 and 1892 loans, the debentures of the Public Works Company (£150,000), and other claims.

These debentures were to be redeemable by an accumulative sinking fund of 1 per cent. per annum, commencing from August 15, 1906, to be applied by purchases or drawings, at the price, in the case of drawings, of £103 for each £100 of debentures. The holders of the 1889 bonds were to receive, in respect of each £100 bond, £100 in mortgage debentures of the railway company, bearing interest from August 15, 1899. The 1889 bonds were deposited with the Council against the issue of negotiable receipts, with two coupons of £2 10s. each attached, payable out of the first two instalments of the subsidy in respect of the coupons on each bond of £100, due February 15 and August 15, 1899.

This arrangement was accepted by the holders of the bonds of the 1889 and 1892 loans, who by the necessary majorities authorized the trustees of the loans to release the respective mortgages. It was also approved by the holders of the debentures of the Public Works Company, and was duly carried into effect.