Shanghai Pengxin purchase of NZ's Lochinver Station rejected by Government
The sale of Lochinver Station, vetoed by the Government, would have created only a couple of contracting roles and potentially one part-time job, Associate Finance Minister Paula Bennett says.
Ministers rejected the $88 million bid from Pure 100 Farm Ltd - a subsidiary of Chinese owned Shanghai Pengxin - because the benefits to New Zealand were not "substantial and identifiable".
That was despite Overseas Investment Office recommendation it be approved.
Substantial and identifiable benefits to New Zealand needed to be weighed against the size of the property, Bennett said.
"We've declined this because of how big it is.
" I'm in favour of overseas investment, I think that it benefits New Zealand hugely most of the time - I just had to take into consideration what I'm going to say is 35 times bigger than your average farm, so that's a big piece of land, and to turn around and think potentially one job and a couple of contractors - is that an identifiable and substantial benefit to New Zealand?"
Prime Minister John Key said the decision showed "the process works".
"As a Governrment I think people can see we've welcomed foreign investment where it meets the legal threshold [and where] it doesn't...we turn it down."
Key rejected suggestions the decision was driven by a likely public backlash should the sale have been allowed to proceed.
"They [the ministers] can't think about public opinion...they have to meet a legal test."
That legal test was on whether a sale met the public interest test and in this case that was a line call.
The Overseas Investment Commission said on balance it probably did but ministers thought otherwise.
Key was at a function with the Chinese Ambassador when the news broke. He said the Ambassador had not raised any concerns with him about the decision.
The Chinese were "pragmatic' about such things and understand the Government had to apply the law, no different to the treatment New Zealand would expect when operating in China.
He did not believe, meanwhile, that it sent a negative message to foreign investors.
The "vast overwhelming bulk" of OIC land sale applications were approved and Government ministers had publicly backed Chinese investment in Silver Fern farns this week.
Shanghai Pengxin was "surprised" and considering its options after the Government rejected its application.
"The improvements we have made to existing assets are well known," the company said.
"Pengxin has spent more than $18 million, since settlement, to improve the productivity and environment of the former Crafar farms to new historical levels.
"We are surprised and extremely disappointed with the decision and will be considering our options."
Shanghai Pengxin, 99 per cent-owned by Chinese rich-lister Jiang Zhaobai, had a conditional agreement to buy the station for $88m from owner Stevenson Group.
The sale of the 13,800-hectare sheep and cattle station was understood to have been rejected by the Government for not creating enough extra jobs.
The station, which is valued at more than $70m, would have been one of the biggest foreign acquisitions of New Zealand land. It employs 22 workers.
Lochinver had been owned by the engineering, mining and quarrying firm Stevenson Group for more than 50 years, but the company wanted to use proceeds from the sale to invest in its large quarry operations in Drury, near Auckland.
Stevenson had expected to create more than 8000 jobs during the 15-year project.
READ MORE: Lochinver sale to fund quarry operations
Stevenson Group chief executive Mark Franklin said in a statement that he was disappointed with the outcome.
"At this stage I am not sure we agree with the assumptions used or the way the criteria has been applied," he said.
"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."
He said he felt it was unclear as to why Lochinver Station farm was any different to others that have been approved, given the benefits to both the farm and to Stevenson Group.
"Beyond this transaction, this decision will 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 had planned to sell its New Zealand farm assets, which include the former Crafar dairy farms, into an offshore partially owned, listed company called Hunan Dakang.
Dakang would have Chinese retail investors and would seek to purchase those New Zealand farm assets.
The aim was to create more investment capital for Shanghai Pengxin, which also was interested in beef, property development and other interests in New Zealand.
Federated Farmers president Dr William Rolleston said the decision gave a message to those purchasing farmland that substantial economic benefits needed to be seen.
"This clearly doesn't meet the tests."
The federation welcomed foreign investment, but as foreign investments became more significant, decisions like this helped draw a line as to where the test level was.
He was surprised with the OIO's statement, which called the question of whether the benefits of the potential investment to New Zealand are or could be substantial and identifiable as "finely balanced".
"I would have expected that for purchases of this size, that the substantial benefit would be in the realms of bringing new technology to New Zealand that we don't already have or some degree of market penetration would have given us increased access to markets that Shanghai Pengxin have."
It would be this level of benefit he expected for it to be approved.
"From the information I have got so far, it doesn't look like either of those things were included in the application and therefore I'm surprised it said it was finely balanced."
Rolleston doubted it would be a decision that would put foreign investors off New Zealand.
"The value proposition for foreign investors is still the same."
OWNING NZ LAND A PRIVILEGE
Bennett said while they recognised and supported overseas investment, it was a privilege for overseas people to own sensitive New Zealand assets and such investments had to meet statutory criteria for consent.
The OIO said the question of whether the benefits of the potential investment to New Zealand were or could be "substantial and identifiable".
Land Information Minister Louise Upston said she and Bennett agreed parts of the proposed investment could benefit New Zealand, but on the overall balance of evidence, the benefits would not be substantial and identifiable.
"This is an example of our system working well," Upston said.
"The OIO conducted a thorough investigation before making a finely balanced recommendation. Ministers carefully assessed the evidence and ultimately came to different view."
Waikato University professor of agribusiness Jacqueline Rowarth supported a rejection of the Lochinver sale.
"They have got a point. What would they be doing that would be different from what is already being done?"
Shanghai Pengxin had to make a number of improvements when it bought the Crafar farms and was therefore adding value.
That was not the case with Lochinver Station.
Rowarth feared a rejection could precipitate a landslide in farm real estate values because it sent a signal that farms were not being sold to overseas buyers anymore.
"Will land prices start collapsing in New Zealand?"
If that happened, it would create a terrible problem because of the high debt-to-equity ratio on many dairy farms, Rowarth said.
"It's part of everything that is building. The banks are already saying to people, 'sell what you can', particularly in dairy."
The banks were trying hard not to put farms on the market in case it led to a devaluation of farm land.
"The minute the OIO starts saying there must be internal buyers, we have the potential for a reduction in land price values."
Labour Finance spokesman Grant Robertson said the decision to block the sale was the right call.
"Labour would strengthen overseas investment criteria by creating a publicly-searchable farm sales register, require buyers to have a clear plan to create new jobs and improve productivity and keep them to their word through spot audits.
"It appears the only reason Lochinver was blocked is heightened media attention. It's unfortunate that other sales without similar attention are being waived through," Robertson said.
On Tuesday when meat processor Silver Fern Farms announced a $261 million deal with Shanghai Maling, Prime Minister John Key said investment with China went both ways. Fonterra had recently bought an 18.8 per cent stake in Chinese infant formula manufacturer Beingmate.
New Zealand First said the the rejection of the sale because benefits were not substantial was baffling.
"The National government has merrily ticked off over a million hectares of land to foreigner buyers, and none of those sales add substantial benefit for New Zealand," deputy leader Ron Mark said.
"Their continued sell-off of New Zealand is resoundingly unpopular. Show us the substantial benefit from all the sales.
"If Lochinver adds no benefit, what value was there in letting the same company, Shanghai Pengxin buy the 16 Crafar Farms, when there was New Zealand interest, and the 13 Synlait farms in Canterbury. Show us the substantial benefit from all the sales.
"What about the Penni farms in Northland to the same group? Will that sale of seven dairy and three support farms?"