Chinese eye dairy assets

22:28, Mar 24 2010

Fonterra chief executive Andrew Ferrier doubts there is an economic case for Chinese looking to invest in the dairy industry to buy their own processing plants in this country.

Chinese-owned Natural Dairy (NZ) Holdings told the Hong Kong stock exchange yesterday it had entered into an agreement to buy assets, including land, livestock and milk powder production plants in this country for $1.5 billion.

Mr Ferrier today said the possibility that Chinese investment in this country could compete with Fonterra would depend on whether they wanted to put in their own processing assets, or whether they wanted to run their milk through Fonterra.

He doubted there was an economic case for them to buy their own processing plants in this country, with the Fonterra system far more efficient than anyone could replicate, he told Radio New Zealand.

"But again, we're getting ahead of ourselves. We have to get the facts behind this issue."

Thinking about long-term food security, New Zealand had to be awake to the fact many people were going to be interested in investing in this country, he said.


"Our government does have to be aware of the fact that there should be extensive foreign interest over time in investing in New Zealand farms, and we've got to think of this from a policy perspective."

Mr Ferrier also said Fonterra was building farms in China, because the Chinese were asking it to do that.

"We're putting in farms to supply safe, healthy milk to our customers in China which complements the New Zealand milk that we're shipping to them."

The proposed purchase included the Crafar family's 22 dairy farms, put into receivership last October.

Receiver looking to conclude transaction

Receiver Michael Stiassny, of KordaMentha said his office was dealing with Chinese interests around Natural Dairy to see if they could conclude a transaction.

"They've approached us. We are in the process of putting the farms up for sale and we have engaged with these parties because the price that they're offering is one that interests us," Mr Stiassny  told Radio NZ.

A number of people had come to the receivers about the Crafar farms, "but this is the transaction we have been engaging on for some time, we haven't yet concluded it. We may not conclude it, but we are working with their solicitor to get it to a point where we can sign it, and then see whether it goes through OIO (Overseas Investment Office) or not".

"It's an attractive offer for us and we're doing what we can to bring it to a conclusion," Mr Stiassny said.

There was no doubt that under the current political environment the OIO was operating at a far quicker pace than under previous administrations, Mr Stiassny said.

When asked about his feelings on the potential deal, Mr Stiassny said there was a distinction between what he was bound to do by statute and what he would do personally.

"I have to make sure that if I sell the business to someone they have the money... and we're taking steps to ensure that if we enter into it and they get possession, the secured creditors will get their money."

Surprising supporters

Some surprising names are emerging as being associated with the Chinese group.

It emerged yesterday that Natural Dairy has a 20 per cent stake in a company of which Maori leader Sir Ngatata Love is a director.

Auckland lawyer Kerry Knight of Knight Coldicutt is legal adviser to Natural Dairy and the spokesman for the group is high-profile broadcaster Bill Ralston.

Mr Ralston said Natural Dairy had a 20 per cent stake in UBNZ Assets Holdings, the directors of which, according to Companies Office records, are Sir Ngatata, of Wellington, Keith Rushbrook of Auckland and May Wang of Auckland.

UBNZ Assets was acquiring the funds for UBNZ Funds Management, which in turn was buying farms from Crafar Farms and "relevant receivers", Mr Ralston said. Four farms had been purchased.

The Reporoa-based Crafar family's dairying empire was involved in high-profile receiverships last year. Mr Ralston said two of the farms had been bought from receiver McDonald Vague, which handled the receivership of Nugen Farms, whose director is listed as Robert Scott Crafar. He is a son of Allan Crafar, who had 24 farms put into receivership.

Two other farms had been bought from a company called Windburn View, Mr Ralston said. A director is a Crafar family member. This company is not in receivership.

UBNZ was negotiating with KordaMentha, another receiver, to buy the 24 farms formerly belonging to Allan Crafar and family members.

KordaMentha receiver Michael Stiassny said: "They haven't bought our assets."

The farms were south of Hamilton, around Taupo, in Hawke's Bay, Taranaki and Manawatu, Mr Ralston said.

Natural Dairy had been rebuked by the OIO after failing to get approval for the four earlier farm purchases.

As for the announcement that it had entered an agreement to acquire dairy processing plants, Mr Ralston said the company was "having discussions with parties regarding milk production".

"These are targeted deals and are still being assessed ... plants may yet be acquired. Notwithstanding that, Natural Dairy also has plans to build its own specialised plants [if required] for infant formula and long-life milk."

The average cost of building a milk powder plant in New Zealand was $100 million, an expert said.

Natural Dairy reported a loss of HK$4.34 million (NZ$559,000) with sales of HK$2.3m for the six months ended September. It is reported to have cash and bank balances worth HK$12.1m as at the end of September.

Mr Ralston said it was a "start-up" company, and had changed its name from China Jin Hui Mining Corp. "Currently ND has brought NZ$140m on shore for its targeted acquisitions with another $60m coming on shore shortly."

Further capital raising was under way in Hong Kong.

The publicly-listed Sun Hung Kai company was undertaking the capital raising, which was being underwritten by Standard Chartered Bank, Mr Ralston said.

Dairy land prices have fallen about 30 per cent since the global financial crisis dried up bank lending.

Natural Dairy is incorporated in the Cayman Islands. Despite having a Hong Kong street address, it has no telephone number.

New Zealand dairy heavyweight Fonterra, which processes 92 per cent of the country's raw milk, said there was nothing substantial enough to comment on.

Which processing plants Natural Dairy could be eyeing remained a mystery last night.

The Green Party said the New Zealand dairy industry risked falling into the hands of overseas investors if the Key Government continued "to loosen" overseas investment rules.

- with NZPA and Michael Fox

The Dominion Post