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Latest govt approval for Shanghai Pengxin to buy Crafar Farms to be appealed in High Court by Michael Fay-led NZ consortium

Posted in Rural News

By Alex Tarrant

The New Zealand consortium wanting to buy the Crafar Farms has lodged a new appeal at the High Court over government Ministers' and the Overseas Investment Office's latest approval for Chinese company Shanghai Pengxin to buy the farms.

The Crafar Farms Independent Purchaser Group (GFIPG), led by merchant banker Michael Fay, announced on Friday it had asked the High Court to review government Ministers’ decision “on the grounds that Shanghai Pengxin fails the test of business experience and acumen relevant to the overseas investment.”

The Group’s lawyer, David Cooper of Bell Gully, said the new claim in the High Court was against the Government’s most recent decision announced on April 20th but the grounds were the same as the appeal already lodged by the Group with the Court of Appeal on February 20th.

“Technically the two court proceedings are separate. They concern the same grounds for challenge, but we have to lodge a new proceeding so that the challenge also applies to the second decision by the Government.  It may be possible to expedite the process by having the two proceedings merged and heard together in the Court of Appeal, and we will be looking into that.” Cooper said.

Group spokesman Alan McDonald said the buying group had met in Taupo earlier today and were determined to pursue the appeal.

“The buying group is of the view that if there is a practical step to take to prevent this sale, then they will take that step. They want to keep these farms in local ownership and contributing fully to the local economy,” McDonald said.

The consortium has publicly said it would offer NZ$171.5 million for the 16 farms, which is well below Pengxin's rumoured bid of around NZ$210 million. The farms' receiver, KordaMentha, rejected the CFIPG bid as being too low.

Saga

After spending nine months at the Overseas Investment Office, Pengxin's application to buy the farms was initially approved in January this yearHowever, CFIPG appealed the decision.

In February the High Court upheld the appeal. Justice Forrest Miller ruled the OIO had not applied the economic benefits test in the Overseas Investment Act correctly, and ordered the decision to allow Pengxin to buy the farms be set aside and reconsidered under a more stringent set of criteria.

Pengxin had to demonstrate that the economic benefits stemming from its purchase would be substantially and identifiably more than what would be expected if a hypothetical New Zealand buyer purchased the farms. The offer price would not be part of the consideration.

The OIO initially said it would make its revised decision in just a matter of days. However, it has engaged heavily with Crown Law over its second recommendation in an attempt to ensure it has applied the Overseas Investment Act in accordance with Justice Miller's interpretation.

They gave their revised decision to Maurice Williamson (Minister of Land Information) and Jonathan Coleman (Associate Minister of Finance) at the end of March. Williamson and Coleman then sought outside legal advice on whether the OIO's decision was in accordance with Justice Miller's interpretation before releasing the decision today. In his initial ruling, Justice Miller heavily criticised the two Ministers' decision to rubber-stamp the OIO's recommendation.

Following the High Court decision, CFIPG sent the Overseas Investment Office a list of the economic benefits it claimed would be the result of it being allowed to purchase the farms, while taking aim at Pengxin's bid.

That prompted a strong response from Pengxin, which noted no one would be holding CFIPG to its investment and employment promises, whereas under the Overseas Investment Act, its bid would be constantly monitored to ensure it met the economic and environmental criteria placed on it by the OIO.

Last week, government Ministers again approved Pengxin's bid.

The Crafar farms group was put into receivership in October 2009 owing about NZ$216 million to its lenders Westpac, Rabobank and PGG Wrightson Finance after interest.co.nz revealed animal welfare issues at the farms.

Most of the debt was owed to Rabo and Westpac, with PGG Wrightson owed about NZ$9 million.

An initial Chinese-backed bid by Natural Dairy for the farms was rejected by the government in late 2010, which was denied on 'good character' grounds. Three of Natural Dairy's executives are now facing fraud charges.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

23 Comments

Hop Sing say if sale does not

Hop Sing say if sale does not go thru then all hot bread shops and takeaways will close.
Imagine the riots it will cause when the kiwi's got nothing for breakfast lunch or tea.
It will be like living in North Korea only worse.
yours faithfully
hop sing
ponderosa owner

Finally, Sir Michael...you

Finally, Sir Michael...you are doing some good with all that Tranzrail loot...redemption may yet be at hand,let's hope Mom n Pop live long enough to see it.
 May your Kharma not run over your Footra...Godspeed Sir Michael.

Yes he's keeping the legal

Yes he's keeping the legal profession in sandwiches. How much of that $171 million is Fay's skin-in-the-game. What's the possibility he's just the "celebrity front" and the IWI are footing the legal bill for all these appeals

Michael Fay sold NZ Rail,

Michael Fay sold NZ Rail, what do you think he is going to do with the farms, the guy is a merchant banker.
Whats the old saying Fool me once shame on you, Fool me twice shame on me.

Shoot ! John have you ever

Shoot ! John have you ever hear George W's version of that little ol' saying.
 oh P.S. He and Ritchwhite do a wee bit of merchant farming out there on Mercury Island...just so you know he's a bonafide cow puncher.

The only way michael fay can

The only way michael fay can get these farms is to eliminate the competition. If it came to a straight shoot-out on price, Pengxin are always going to raise him and see him. He's not in the hunt.

But are we witnessing the

But are we witnessing the beginnings of a coalition government  being litigated out of power?

Certainly litigated to the

Certainly litigated to the point of iritation Steven H..... bet they'll go beyond the buget of an SFO case...just to stay ahead of the game......
 If Ritchwhites anywhere near this, the Govt have a problem......he'd actually enjoy it.

The same concerns are being

The same concerns are being raised in Australia
 
"This isn’t just me; there are plenty of farmers who have worked their butts off for nothing for years, who are fed up at now having to watch these people coming in with bucketloads of money made under different tax and wage systems, buying up all our land."
 
http://www.agrinet.com.au/Index.asp?pagename=Grain+farmer+John+Ward+has+taken+a+stand
 
Shanghai Pengxin is a private conglomerate with a stated net valuation of USD $3 billion
Does anyone have access to the published accounts of Shanghai Pengxin and discover whether it's paying tax and how much and at what rate.
 
You can bet the farm they wont be paying tax in NZ

OK CasualObserver and

OK CasualObserver and OmnoLogo. Here's a question fo you. That extra $18 million in undertakings to improve the farms etc etc is a capital commitment, part of the purchase.  But the queston is, does current farming tax practice allow that expenditure as a tax deduction?

Could be a tricky one

Could be a tricky one iconoclast. New infrastucture, plant etc is capital, upgrade to existing is R&M. I'm not really the one to ask, I don't know as much as I pretend, Co would know more ins and outs. But I'd say depends on accountant and attitude to risk, Fay and Richewhite are well versed in that.
 
What's the issue with selling land to transnational corps? NZ gets the tax from capital improvement, corp gets to repatriate profit from increased efficiency? We get told from contributors on this site, and NZ herald business reporters that we need this capital.

We get told from contributors

We get told from contributors on this site, and NZ herald business reporters that we need this capital.
Not this badly.

When you get Fonterra

When you get Fonterra dropping $350 million (in one year) on playing market-maker on its derivatives desk, and some NZ PPP guy the other day dropping $170 million on the Melbourne Convention Centre, maybe you do.

Interesting link , cheers

Interesting link , cheers Stephen.
Interesting development recently in the way farmers stock (cows) are taxed. IRD have repealed one of the shemes due to fears farmers were gaming tax advantage by switching schemes. It has major implications for intergenerational succession, http://www.stuff.co.nz/business/opinion/6719902/Family-farms-hit-by-tax-crackdown but given recent political and media coverage of farmers and tax, I don't expect much sympathy.
Maybe NZ is heading down the same path. Went on a course for farm mangers where message was 'grow or go' (Alchemy of Growth). After course looked into it and appears prescriptive of Milton Friedman (Chicago economics). Since 2008 financial crisis, interesting to hear more economists challenging this school of thought , 'based on fundamentally flawed rational http://www.radionz.co.nz/national/programmes/sunday/audio/2491623/ideas-for-19-june-2011-a-new-economics

I thought Rod Orans

I thought Rod Orans discussion on radio nz, on the crafer farms was interesting, and comapred it to situations in the past. It is worth hearing and can be found ont he radio NZ website in their podcasts.

to much bleating going on for

to much bleating going on for me.
why didn't a kiwi with nuts launch an ipo  for listing on the nzx.
i am sure thousands of ordinary kiwi people would have jumped at the opportunity to be involved in this industry.
oh well typical  kiwis

Well you can, kind

Well you can, kind of...
 
Example A: http://www.ruralequities.co.nz/
Net Asset Value they say: $3.95 - ish June 2011 (if you value each farm as a stand alone).
http://www.ruralequities.co.nz/announcements/MEDIA-RELEASE-020911.pdf
They are doing buy backs at: $3.20
http://www.ruralequities.co.nz/announcements/2%20April%202012%20Share%20...
 
Some B fishers (our friends in Oz) are offering $2.50
http://www.ruralequities.co.nz/announcements/22%20Dec%202011%20Stock%20a...
 
Insiders (market) think its somewhere between:
https://www.unlisted.co.nz/uPublic/unlisted.mt_public.securityDetail?p_p...
Current Bid $3.10, Offer $3.24
 
Or a syndicate, we have half a farm example here:
All up $47 per kg/MS
Debt: $25.68 per kg/MS
Farm Expenses (before interest) $4.05 to $4.10 per kg/MS.
http://farmright.co.nz/files/20120320114750-1332197270-0.pdf
 
Or if your really need a brain freeze follow the wiring diagram here:
http://pastoraldairyinvestments.co.nz/
And they have not got any farms yet.
As an aside, there is a big different between our syndiacte example - a brave seller, and the forecast, expected, anticapated wished for profile farm that PDI say they will buy at?
 
Far more fun to had by finance types trading fonterra div rights we think....
 
Someone else can talk about the Tas Ag., the Applefields brothers..
 

Hi Henry,  Tas ag are you

Hi Henry,  Tas ag are you referreing to VDL farms ? Iv'e been to Woolnorth and seen the New Plymouth district councils 'investment' in the tasmanian dairy industry Ive also been over the other side of the island and seen alan pyes (is that the right guy ? i think) over in rushy lagoon.  Why is NPDC invested in dairying in tassie ?  A few years ago the heifers were so small that they were falling under the bum rail in the dairy ! One of the managers Im told missed 100 + cows calving (ie they calved didn't know which ones had calved or lost the calves) and they just didn't get milked so never came into milk ! Does that sound like a good investment ?  How do the ratepayers of New Plymouth feel about investing in dairying in tasmania ?

They got skinned alive.

They got skinned alive.

ngakonui gold, IPO examples:

ngakonui gold, IPO examples: You can work your way through Tasman Ag. look at the Large Herds Confernec paper of 2009, and Dairy Brands with all the Applefields history.
 
"Regularisation" of Apple Fields land purchase, and Killinchy Gold Dairy Foods
Further "regularisation" (read "retrospective approval") of the position of Apple Fields Ltd is approved in a number of decisions after it, "unknown to Apple Fields", became an overseas company in March 1994. One decision gives retrospective consent to acquire "interests in orchard partnerships and land owning companies (approximately 23 hectares)" for "approximately" $199,925. A second decision, in identical terms, applies to 20 hectares priced at $440,008. A third decision gives retrospective consent to "entering into transactions with Rural Super Bonds Superannuation Scheme (approximately 1,163 hectares)" priced at "approximately $11,400,050". This super scheme was the subject of significant criticism by the Securities Commission (see commentary on the January 1995 decisions).
The fourth decision gives retrospective consent to the joint venture set up with the former owners and founders of Killinchy Gold ice cream manufacturers to form the dairy processor Killinchy Gold Dairy Foods Ltd, for "approximately $1,200,000". Since we last reviewed this particular venture (see January 1995) it has found itself in a spot of trouble. The structure of the joint venture is that 21% of the shares are held by Killinchy Gold founders, Brent and Faye Thornton. The other 79% are held by Dairy Brands New Zealand Ltd, which is half owned by Apple Fields and the other half was to be sold to "processors and investors", interest coming from "overseas as well as New Zealand". Dairy Brands owns the dairy assets of Apple Fields, including 31 dairy farms in Canterbury, Otago and Southland. Its directors are a line-up of the Politically Correct of the New Right: Ruth Richardson, Murray Valentine (Apple Fields chairman), Rob Campbell and David Bainbridge, a Tauranga businessman. The float was principally a means to reduce the debt of the parent company: its rationale was said by Tom Kain to be to realise the assets of the ill-fated Rural Super Bonds scheme which owned most of the farms.
http://canterbury.cyberplace.org.nz/community/CAFCA/cafca95/july95.html
 
U.S. investment fund T/A Pacific, buys 35% of Dairy Brands
U.S.A. owned but Cayman Islands registered investment company, T/A Pacific Select Investments LP, is shifting its ownership of Apple Fields Ltd to its listed subsidiary, Dairy Brands New Zealand Ltd. It is acquiring a 35.3% interest for a sum "to be advised". Dairy Brands was set up by Apple Fields to buy out its dairy farms, including 31 farms totalling 4,381 hectares in Canterbury, Otago and Southland, with the main objective being to reduce Apple Fields’ debt
http://canterbury.cyberplace.org.nz/community/CAFCA/cafca96/jan96.htm
 
Both went on to become Dairy Holdings by South Canterbury Finance
Welcome to Dairy Holdings Ltd 


Dairy Holdings Limited (Dairy Holdings) is a New Zealand registered company with 100% of its farming assets in the South Island of New Zealand
The extensive South Island operations are undertaken through wholly owned subsidiary companies and are managed from the Group's Timaru office.  These operations commenced in June 2001 following the purchase by the Group of the major Canterbury and North Otago dairy properties from the corporate farming entities Tasman Agriculture Limited and Dairy Brands Limited.
http://www.dairyholdings.co.nz/
 
Tasmania is linked as Tasman Ag developed up to 10 dairy farms there.
 

Tasmania: Fonterra has been

Tasmania: Fonterra has been investing on plant and paying up for suppliers.
 
http://sl.farmonline.com.au/news/state/dairy/general/tasmania-faces-milk...
Another factory who has begun to grow is Fonterra.
Managing director Simon Bromell said the processor had already shelled out $24m on the Spreyton and Wynyard sites since 2010, upgrading the cheese and whey operations, as well as increasing capacity.
And it seems the rewards have also remained sweet at the farm-gate.
"Over the past three years, Fonterra has paid Tasmanian farmers $20 million more than if they were paid by a leading Victorian processor," Mr Bromell said.
He says Tasmania offers plenty of opportunities on the dairy scene, including copious amounts of water to lift production on-farm.

Simfarmer: Here is a link to

Simfarmer: Here is a link to the Larger Herds Conference in Ashburton in 2009, Max Duncan's slides re Tasman Ag are on pages 18 to 21.
 
http://www.largeherds.co.nz/downloads/2009_NZLHA_Conference_Proceedings.pdf
 

To ngakonui gold. What about

To ngakonui gold. What about NZ super schemes (govt and kiwi saver)? They could also invest in China in partnership with Fonterra, and allow the govt and worringly more to the point MAF to repeal the unjust DIRA and let the Fonterra co-op sack the board, and go back to being a successful co-op.