Overseas investment rules may have been tightened by a High Court ruling which made the Overseas Investment Office set aside and reconsider its decsion to allow Chinese company Shanghai Pengxin to purchase the 16 Crafar farms, Prime Minister John Key says.
Speaking at his post-Cabinet press conference on Monday afternoon, Key told journalists he thought the ruling effectively tightened rules allowing foreigners to buy sensitive land, although that was subject to how Crown Law and the OIO interpreted the decision.
“That’s my read of it, but obviously I’m not a lawyer and we’re seeking an opinion on that. But on balance, it looks to me as if it’s a tightening,” Key said.
“What is clear is that Justice Miller at least is arguing that a new perspective on that test of [economic] benefits should be interpreted by both the Overseas Investment Office and therefore guide the decision of Ministers,” he said.
'They better get it right'
Meanwhile, Key said on Monday morning that it was important the Overseas Investment Office is "absolutely sure" it has applied a High Court ruling on overseas investment rules correctly, as the OIO revises its decision to allow Chinese company Shanghai Pengxin to purchase the Crafar farms.
The OIO’s decision in late January to allow the sale of the 16 farms to Pengxin was challenged via judicial review by a group of local investors led by merchant banker Michael Fay, who want to purchase the farms themselves. Justice Forrie Miller ruled in the Wellington High Court that the OIO set aside its initial decision and apply a different interpretation of the law to it.
Rather than using a ‘before and after’ test relating to the current level of investment in the farms versus the investment promised by Pengxin, the OIO must now apply a ‘with or without’ test, with which it must compare the proposed economic benefits stemming from Pengxin’s bid to those which may be brought by a hypothetical local investor if they were to purchase the farms.
The economic benefits stemming from Pengxin’s purchase must then be identifiably and substantially greater than those of the hypothetical New Zealand investor.
Speaking on RadioLive this morning, Key said the new interpretation of the law was not easy to quantify, and was "certainly quite a different test."
"The OIO will need to go away and be absolutely sure they’re now interpreting the law as [it was] essentially interpreted by Justice Miller correctly," Key said.
Might not be this week
Justice Miller's ruling could push the timing for the revised decision out past the end of this week, despite the OIO saying last week that it should provide a decion in a few days, Key said.
It was important the law was applied correctly, or the OIO could be subject to further judicial reviews, he said.
“I know Ministers have said that [there should be a decision this week], but if you just take a step back and think about what’s happened, effectively the judge turned the interpretation of the law on its head last week," Key said.
"I don’t know. I’ll probably get a little bit better advice today about the timeframe, but it just feels complex to me. I’m certainly not confident it’ll be this week,” he said.
Would Cameron's purchase have gone through?
The government had been "largely ambivilent" about who bought the Crafar farms, as long as they met the law. The job of maximising the sale price was a matter for the farms' receiver, not the government.
Key said the government was getting advice on the long-term implications of the decsion by Justice Miller, as it could affect future OIO decisions. It could even have been the case that the purchase of two Wairarapa farms by Canadian film director James Cameron would have been turned down under the new interpretation of the law, he said.
SOE floats: Investor loyalty scheme?
Meanmwhile, regarding another type of potential foreign investment in New Zealand assets - through the selldown of shares in four state-owned energy companies - Key said Cabinet had not yet discussed the idea of investor loyalty schemes for New Zealand investors issued shares in the original bookbuild processes for the 'mixed-ownership' model companies.
The NZ Herald reported this morning that Treasury was interested in a loyalty scheme used by the Queensland state government whent it sold rail company QR National in 2010. That was in an attempt to stop 'stagging', when local investors who were issued shares quickly on-sold them.
“Whether we actually need loyalty or bonus schemes is something the Cabinet hasn’t had the opportunity to consider yet. It’s a possible device, although we expect the demand to be quite high for these shares," Key said.
"I’m not ruling it out, I just haven’t considered all the options," he said.
(Updated with quotes from Key, with comments from Post-Cabinet press conference Monday afternoon, comments on SOE share 'stagging'.)