By Paul McBeth and Jonathan Underhill
Sept. 17 (BusinessDesk) – Associate Finance Minister Paula Bennett says the government’s decision to reject the Overseas Investment Office’s recommendation on the sale of Lochinver Station to Shanghai Pengxin wasn’t political and ultimately she wasn’t convinced the deal provided enough benefit to New Zealand.
The OIO had recommended to Bennett and Land Information Minister Louise Upston that the $88 million sale met the requirements for sales of sensitive land to foreigners and included improvements such as conversion of forestry land to dairying that would have increased the output of the 13,843 hectare station. Shanghai Pengxin already owns the Crafar Farms, a holding of Synlait Farms and properties in Auckland and Queenstown.
But the recommendation was overruled by the ministers, who said the conversion of forestry and wilding pine land into an additional 600 ha of dairy farms, and associated job creation and increased production, wasn’t enough of an overall benefit for the size of the whole station.
“Public opinion didn’t come into this,” Bennett told reporters at the parliament. “I did take heavily the responsibility of it being substantially and identifiably of benefit to New Zealand. I have absolutely no qualms sitting here and telling you that I made the decision in what I thought was the best interests in New Zealand and not a political decision because of public opinion.”
The decision ends a long wait for Shanghai Pengxin, the diversified investor owned by Chinese billionaire Jiang Zhaobai, which agreed to buy the farm near Lake Taupo from concrete, quarrying and engineering firm Stevenson Group last year.
Stevenson chief executive Mark Franklin said he was disappointed with the outcome and the assumptions used to reject the deal “do not reflect our reality – we carried out extensive marketing of the farm and the hypothetical New Zealand purchaser did not come out of that process.”
“We are concerned that this process has taken 14 months with the end result that we have been deprived of our property rights to sell to the highest value bidder for some vague national benefit which has not been defined,” Franklin said. The decision would have “significant economic ramifications for the New Zealand economy, particularly in the areas of international relations, uncertainty of foreign investment and rural land prices.”
Shanghai Pengxin’s Pure 100 subsidiary said it had spent more than $18 million, since settlement, to improve productivity of the Crafar farms, demonstrating its commitment to adding value and it was “surprised and extremely disappointed with the decision” and would be considering its options.
But Bennett said unlike the Crafar farms, Lochinver was already “very well run.”
“Crafar wasn’t in that state – it needed a lot of investment in it, so as such the purchaser was able to show identifiable and substantial benefit to New Zealand,” she said.
Shanghai Pengxin planned to rationalise its New Zealand assets had the deal been approved. According to the detailed July 31 recommendation from the OIO it had proposed to then sell its interest in the Crafar farms and Lochinver to its 55 percent-owned subsidiary Hunan Dakang Pasture Farming Co, a Shenzhen listed company. At the same time it had intended to grant Hunan Dakang management rights over its interest in Synlait Farms. The effect would have been to reduce Shanghai Pengxin’s interest in Crafar and Lochinver to 55 percent from 100 percent, bringing on board other Chinese investors via the listed entity.
The decision raises questions about the message being sent to the OIO about how it applies its benefit tests, with future decisions likely to include the sale of 50 percent of Silver Fern Farms, the country’s biggest meat processor and exporter, to Shanghai Maling Aquarius, a listed subsidiary of China’ state-owned Bright Foods. That proposed $261 million deal, at a premium to SFF’s stock price, would strengthen the meat company’s balance sheet and potentially position it to acquire rival Alliance Group.
Gary Romano, chief executive of Pengxin International, couldn’t immediately be reached for comment.
The Stevenson family has owned Lochinver for 60 years but started as a drain-laying business in 1912, expanding into quarrying and construction in the late 1930s, and making concrete blocks from 1946. The original 5,260 ha Lochinver farm was acquired in 1958 and the family expanded to 16,595 ha “breaking the wild country into farming land” with “an enormous amount of hard work.”
Set up in 1997 as a commercial property developer, Shanghai Pengxin began diversifying into agricultural assets in 2005. According to the website of its Milk New Zealand subsidiary, it now controls more than 12,000 hectares of land in South America, Cambodia and China, farming wheat, corn, soybeans and sheep.
It said the company wants to utilise its contacts to help the New Zealand dairy industry sell into China and may in time become involved in exporting non-dairy products from New Zealand too.
Milk New Zealand reported an increased profit of $32.8 million in December for the year ended June 30, 2014, up from $11.1 million a year earlier. It has signed a supply and purchase agreement with Miraka for ultra-heat treated milk.
Through its farming operations, Milk New Zealand owns shares valued at $23 million in dairy cooperative Fonterra and $827,569 in fertiliser cooperative Balance Agri-Nutrients.
Jiang, ranked 91 on the Forbes Rich List with estimated wealth of US$1.7 billion, has also bought commercial properties and invested in a number of tourism assets in New Zealand.