Govt Ministers again approve Shanghai Pengxin's purchase of Crafar Farms, following revised Overseas Investment Office recommendation

Govt Ministers again approve Shanghai Pengxin's purchase of Crafar Farms, following revised Overseas Investment Office recommendation

Government Ministers have again approved Chinese company Shanghai Pengxin's bid to buy the 16 Crafar Farms, following a revised recommendation from the Overseas Investment Office.

The revised decision, replacing initial approval given in January, enforces a more stringent set of obligations on Pengxin. It must now invest at least NZ$16 million upgrading the farms and protecting environmental and heritage sites, up from NZ$14 million imposed initially.

Pengxin is now set to enter into a joint 50/50 venture with state-owned enterprise Landcorp, which will run the farms. The farms will initially supply Fonterra while Pengxin looks to secure an agreement with a local milk processor, which could be Fonterra itelf, to process products including baby formula, cheeses and ice cream, to sell to the Chinese market.

Landcorp is set to receive about NZ$4 million annually for its management of the properties.

A rival bidder for the farms, a New Zealand consortium led by merchant banker Michael Fay, and which took the OIO to court over its initial recommendation, immediately attacked the decision. It did not say whether it would appeal the latest decision.

Land Information Minister Maurice Williamson, and Associate Finance Minister Jonathan Coleman, made the announcement that Pengxin's subsidiary Milk New Zealand Holding would be allowed to purchase the farms on Friday.

This is the second time Pengxin has been given approval to buy the farms, after initial approval was overturned by the High Court, which ordered the OIO to reconsider its decision under a more stringent set of criteria.

It is believed Pengxin will pay about NZ$210 million for the farms.

The Crafar farms were tipped into receivership by lenders Westpac, Rabobank and PGG Wrightson, who were then owed about NZ$216 million, in October 2009.

The farms' receiver, Brendon Gibson of KordaMentha, was not immediately available for comment.

Conditions raised

“New Zealand has a transparent set of laws and regulations around overseas investment,” Williamson said in a media release.

“Those rules recognise the benefits that appropriate overseas investment can bring, while providing a range of safeguards to protect New Zealanders’ interests. They are applied evenly to all applications, regardless of where they are from," Williamson said.

“We have sought to apply the law in accordance with the provisions of the Overseas Investment Act and the guidance of the High Court," he said.

“We have carefully considered the OIO’s new recommendation. The OIO sought advice from Crown Law and independent legal advice from David Goddard QC. The Ministers also sought advice and clarification from Mr Goddard. We are satisfied that on even the most conservative approach this application meets the criteria set out in the Act and is consistent with the High Court’s judgment.”

Coleman said the consent came with stringent conditions.

“These 27 conditions have been imposed to ensure Milk New Zealand’s investment delivers substantial and identifiable benefits to New Zealand,” Coleman said.

The conditions require Milk New Zealand to invest NZ$16 million into the farms and to protect and enhance heritage sites. That is up from the NZ$14 million Milk New Zealand was required to invest in the OIO's initial decision.

“The combined effect of the benefits being delivered to New Zealand as a result of this transaction is substantial,” Coleman said.

A copy of the OIO’s new recommendation is at: http://www.linz.govt.nz/sites/default/files/docs/overseas-investment/oio-recommendation-crafar-farms-20120420.pdf

A copy of the OIO's decision summary is at:  http://www.linz.govt.nz/sites/default/files/docs/overseas-investment/decision-summary-201110035.pdf

Long time coming

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

However, a rival bidder for the farms, a consortium of New Zealanders led by merchant banker Michael Fay, challenged the OIO's judgement in the High Court. Fay's group, called the Crafar Farms Independent Purchaser Group (CFIPG), had bid NZ$171.5 million for the farms, well below Pengxin's rumoured bid of around NZ$210 million.

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 government ministers Maurice Williamson and Jonathan Coleman 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.

'What we'd bring'

The Fay consortium said it would invest NZ$18 million upgrading the farms over three years, while the Overseas Investment Office had required Pengxin to invest at least NZ$14 million in upgrading the farms.

That would lead to a 25-30% increase in producticity and performance across the 16 farms, and a 15% increase in permanent staff and contractor levels, CFIPG said. That amounted to an extra 13 or 14 workers, it said in the submission. There would also be a significant level in short-term employment due to the initial capital spend, it said.

Read the CFIPG submission here.

CFIPG said it would likely continue with sharemilking arrangements on the farms, rather than employ farm managers. It also committed to environmentally responsible and sustainable farming practices, and to the protection and enhancement of historic heritage in relation to the Nga Herenga and Te Ruaki pa sites on the land, a similar promise to the one made by Pengxin.

A New Zealand purchaser would also provide on-farm training for junior employees, CFIPG said in response to Pengxin's proposal to set up an on-farm training facility.

Pengxin said in response that it would invest NZ$18.7 million for production and environmental upgrades, as well as allowing for public access to a forest park and preservation of Maori pa sites. NZ$15.5 million would be spent over the first three years, it said. In its initial approval, the Overseas Investment Office had required Pengxin to spend at least NZ$14 million on farm upgrades.

A joint venture management contract with State-owned farming company Landcorp for running the farms was likely to net the SOE NZ$3-4 million annually for its management of the properties, Pengxin said.

Pengxin also said that, unlike CFIPG, which was looking keep the farms supplying raw milk to Fonterra, it would enter into a joint venture processing operation in partership with New Zealand interests to process the milk produced on the farms into cheese, ice cream, infant formula, UHT milk and yoghurt.

Those products would be marketed in China under the "Nature Pure" and "Pure 100" brands, it said.

"Pengxin will invest at least NZ$100 million in marketing these product s in China in the first five years, building up market demand which will benefit other New Zealand exporters. New Zealand still exports more than half its milk in the form of milk powder, which others use as the raw material to create high value consumer products. We need to move up the value chain and compete with them,” Pengxin said.

"Pengxin will give Landcorp the opportunity of being involved in the management of Pengxin’s sheep breeding operations in China, also helping  Landcorp win other consultancy and management assignments in China and assisting  them in marketing produce direct from Landcorp’s farm properties in New Zealand."

Chequered past

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.

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.

'Not what is needed'

Following the latest announcement, Fay said the approval represented a "bad day for New Zealand," and that the sale was "simply the wrong thing to do."

“Three out of every four New Zealanders are against selling these farms into foreign ownership.”

"It is clearly not a good decision for the economy. It shows the Government has no commitment to the people who live and work in the rural sector. Sixteen dairy farms – an area the size of Hamilton - and a minimum NZ$20 million per year of Fonterra milk payouts are lost to the Central North Island economy for good," Fay said.

“This is a one way deal. No Kiwi will ever own a farm in China and that’s a fact," he said.

“Our group is disappointed and our Iwi members are justifiably angry at this action by the Government. Since September last year we have increasingly felt that the intent of the Overseas Investment Office (OIO) and the Government was to push this sale through.

“Our group was determined to make a case for a sale to New Zealand dairy farmers. We were successful in a High Court challenge to the Government’s initial approval and the Judge clearly set out the proper application of the ‘benefit test to New Zealand’ that a foreign buyer must meet. This second recommendation from the OIO and approval by the Ministers reflects nearly 12 months of to and fro negotiations between the OIO and Landcorp working for Shanghai Pengxin to get this application approved,” Fay said.

“It is hard to comprehend that this sale can go ahead only because a Government owned entity, Landcorp, has partnered with Shanghai Pengxin to provide the necessary business acumen and expertise required for OIO approval,” said Sir Michael.  Our group has always believed that this requirement cannot be met by simply buying in local expertise. This would mean that any potential foreign owner would be approved if they could ‘buy in’ sufficient New Zealand expertise to effectively make a nullity of this key requirement in the OIO rules,” he said.   

“With this sale approved by our Government, and farm gates now wide open to cashed up overseas investors, just how much productive land will go to offshore ownership?  Sadly the continuing loss of our productive land is going to be an extremely high price for the farming industry and the country to pay.”

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dont blame me, I voted for Winston

And you are proud of voting for that idiot who only thinks about himself before anyone else. No wonder this country is in the crap financially when we vote back in people with his track record.

I named my cat after him

John Key: the two-term prime minister.

...not so sure...to be replaced by who exactly????

He will be gone before he completes this term anyway.
National has now confirmed they have a death wish.

National has now confirmed they have a death wish.
 
Only the frontbench!
 
Which is why I agree with you that Key may not be PM come October 2014.

Front bench?
Coleman's only number 14 on the Cabinet list, and Williamson isn't even in Cabinet - at #21
:)

The National party's death wish has little to do with this sale. And you don't seriously believe Coleman/Williamson were calling the shots do you?

No NZcry ?
 
Alex – as a young NZjournalist, is that all you have to say. How do you feel about the deal ? How does the interest team feel about the deal – silence ? I ask myself - where is the opposition of the NZmedia/ NZpublic for the current, mismanaged  National policy ?
 
Bloody hell – who is going to stop these megalomaniac NZeconomic/ financial developments – leading our nation into more misery ?

Watching TV1's breakfast show hosts Petra Bagust and Corin Dann interviewing Key is like watching a couple of young nat supporters fawning all over him, it's not hard to work out which political persuasion these two have.

hop sing very plesaed with this outcome.
my company has just tendered for supplying catering for all staff on property.
references supplied by ben adam,hoss and little joe Cartwright
 
ponderosa ranch
 
nevada.
 

“New Zealand has a transparent set of laws and regulations around overseas investment,” Williamson said in a media release.
Those rules recognise the benefits that appropriate overseas investment can bring, while providing a range of safeguards to protect New Zealanders’ interests. They are applied evenly to all applications, regardless of where they are from," Williamson said.
 
Just like any debtor nation NZ has to clarify the legal transfer of land to liquify our increasingly unpayable foreign borrowing liabilities. The not so sensitive baubles have been or are in the process of being sold. Unfortunately there are not enough to meet the demands of our creditors. The Government's wiilingness to pay back the government debt to our Chinese creditors is obviously not enough. And why would it be? Our total net per capita indebtedness surpasses that of the Greeks. 

This isn't a question of 2 sides, its more like a choose between a bad decision and a worse one.
Simply; we should observe reciprical rights, if we can do it in your country you can do it in ours. This should not be the end position but a starting one.
Secondly Micheal Fay is doing us a favour, Yeah right.
Now who was the bad decision and who was the worse decision again?

Who, what, where is the joint venture processing operation in partership with New Zealand interests
Sounds like more work ex the DIRA.
The next question, why wouldn't they do what Bright did and est/nabb a Synlait-like processing plant. It could have been built by now, and in Brights case cost them $80m odd, not the $210m mentioned here, and little hu ha.
which ways up, or do both sides say "see over" ?
China baby formula is big time ....
The Pfizer unit is a high-growth $2.1 billion turnover business with over 70 percent of sales in emerging markets and a key position in China, and has attracted the attention of the three largest players in the infant milk formula sector.
http://www.dnaindia.com/money/report_nestle-to-buy-pfizer-s-baby-formula...
and why is Fonterra doing what its doing or not doing Nestle-wise. Which is better a idea - a milk pool or bady formula mkt -
 

Hi HT. have put that in now up top.
Cheers,
Alex

This government is the biggest bunch of muppets NZ has ever had in power.

why is everyone upset.
the nats were voted in late last year and anyone who didn't think that this would happen must be living in cuckoo land.
as for a death wish labour introdeced or tried to introduce some of the most interferring policies ever .didnot worry them at all thats why they lost so you could say that all parties have death wishes.

Tenants in our own land
Now we are able to go to the OIO site and see a record of the deals AFTER they rubber stamp them, but how are we going to be able to know from now on how much the sale of our farm land to foreigners could well accelerate now, before the fact, so that we CAN demostrate that this was not just a case of xenophobia
Need to get it across to this and any other govt that we want this tightened up, big time. We ARE in grave danger of becoming tenants in our our  land, and I cannot for the life of me see how anyone can put a positive spin on that!
And while they are there they can do something about the foreign landlords as well

Updated with video of Williamson press conference.
Notice the comments about asking the Foreign Minister what damage it would do if they turned down the bid.
Cheers
Alex

Severe implications - so it was a done deal and all the OIO nonsense is what it is?  

Well, chaps and chapesses, when yer borrowing a billion a month to pass on to such deserving Gumnut projects as welfare, policing, pensions, prisons, not to mention the middle-class vote-purchase otherwise known as WFF, even the dumb-as-a-box-of-hammer-est amongst the population knows that Repo Man cannot be far away.

Spot on. I reckon it's a cheap lesson. If anyone out there is listening.....

I named my cat after him

"Tenants in our own land"......well we have to pay back $170b somehow. Out trade balance is generally close to zero, give or take a billion either way. Barring a 25% devaluation, how do people think we are going to pay back our debts?
The reality is that we've already sold most of our assets. It's just a question of when the creditors decide to collect.

And when we pay them back what do we use as a means of paying our way

You pay as any normal household would: out of income (the trade account) or by selling what you own (your assets). Given our trade account is restrained by an overvalued exchange rate, the only option is to sell assets. 
People may not like it but they took on the debt willingly and like Dr Faustus, they must cough up. 40 years of living beyond one's means whilst successive governments have turned a blind eye....no doubt believing in the "efficiency of the markets" to sort things out. 
Things will be sorted out according to market principles but perhaps not in the way people had hoped. 

I started it yesterday ....may as well get on and finish it.
Vs1.
 Old Mcpengxin got the farm........... OIOIO
Now on that farm he had some luck....OIOIO
With pen stroke here and backhand there
Here a tip  there a snip given to the nitwits
Old McPengxin's got the farm , now he wont let  go.
Vs2.
Now you may raise your head for air
at the OIOIO
Cause the stink of shit is everywhere
 at the OIOIO
when a dirty deal's sealed from a Ministers chair
here a lick,  there a stamp...no wonder we've got no chance
Old Mcpengxin's got more dough...now National has also.
Vs3.
You think we should bear a grudge....oh my, I think so
 Cause Morrie over-ruled the judge...that just goes to show
Who can be bought, for foreign cash,he's alright, he's got his stash
Now Old McPengxin's got the farm...Maurice has   new clothes. 
 
 
 
Dear Minister....I hope you recieved your fan mail complete with accompanying fecal  material. Do enjoy on a warmish afternoon while supping your Tiger penis tea.
Your enduring soon to be tennant.
 

Clap clap clap clap
Now finish this one for me
Sky bought the law
Now it's all done
Sky bought the law
John is in the gun

RRRRRRobin people for a conven- tion
Sky bought the law....John is ,their gun
We needed one cause we had none
 Sky bougt the law......John is their gun
 refrain...
He left out bidders cause he feels disdain
I guess the deal was done..
Well he's the best toady ,that they.... ever had
 Sky bought the law...John is their gun
Sky bought the law....n ...then some.

The KordaMentha chaps are happy:
Receivers pleased with OIO decision
After an extensive process, the receivers of the Crafar farms, Brendon Gibson and Michael Stiassny of KordaMentha, are pleased with the OIO recommendation and the Government's consent today to the sale to Pengxin International Group Limited.
Brendon Gibson of KordaMentha said: "This has been a long process that started with extensive local and international marketing, from which Pengxin International Group Limited's offer was by far the best offer received, so we are pleased with today’s decision”.
The receivers will not be making any further comment at this stage.

Best out come for the small unsecured creditors at least they might get a bit of there money back  also saved the Government from being sued for the difference in the chinese offer and that I leave the country  fay while I was being investagated If you want people like him owning large amounts of land you deserve what you get If the chinese don't play the game right just kick them out that is what they have done to our companyes over the years no biggie

Best out come for the small unsecured creditors at least they might get a bit of there money back  also saved the Government from being sued for the difference in the chinese offer and that I leave the country  fay while I was being investagated If you want people like him owning large amounts of land you deserve what you get If the chinese don't play the game right just kick them out that is what they have done to our companyes over the years no biggie

Styley SoreL...... Ta.!

By all accounts the New Zealand government came under pressure from the Chinese to close the deal in their favour or else face economic and trade sanctions. These tactics are not uncommon when dealing with a expansionist, supremacist nation whose human rights record is appalling. The selling of land, our prime asset, shows how weak and vulnerable NZ is when dealing with a ruthless land-grabber who will treat us no better than their African trading partners.