Chinese acquisition surprises

DAVE BURGESS AND MARTA STEEMAN
Last updated 05:00 04/03/2014

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Losing bidder Infratil is surprised a Chinese company would pay $950 million for New Zealand's largest waste-management business, while opponents of foreign investment fear the new owners will "milk it for all it's worth".

Australia's Transpacific Industries Group said yesterday it had sold its New Zealand subsidiary to a wholly owned subsidiary of Beijing Capital Group, a large-scale state-owned enterprise, for $950m.

Infratil chief executive Marko Bogoievski said the infrastructure company was part of a consortium of local investors that bidded for Transpacific in New Zealand following a "lengthy and comprehensive process".

"We think we had a good understanding of the asset and we bid what we thought was a sensible number.

"We're surprised at the price [$950m] and it will be interesting to see how the market evolves with two buyers now coming out of non-traditional investors in the market."

But Tom Nickels, managing director of Transpacific Industries New Zealand, said the $950m deal with Beijing Capital Group was a fair but not high price at 8.6 times Transpacific NZ's earnings before interest, tax, depreciation and amortisation (8.6 times ebitda).

That was the same multiple that Cheung Kong Infrastructure (CKI) paid a year ago for New Zealand's second-biggest waste management company EnviroWaste.

The sale is expected to be completed at the end of June. It is subject to approval by the Overseas Investment Office in New Zealand and approval from Chinese regulatory bodies.

NZ First leader Winston Peters said despite bids from New Zealand interests, a foreign bid was always going to win.

"This time it is a company from China bidding a high price - helped by the fact that our Kiwi investment companies are facing interest rates five times higher than those in China.

"The Overseas Investment Office, which should be the watchdog for New Zealanders, will again show its usual lack of concern by rubber-stamping the $950m deal with the full backing of the Government."

Peters questioned whether "this non-New Zealand company" could deliver "environmental friendly waste management" so New Zealand could justify its Pure NZ branding.

"The answer could well be in the latest example of a purchase from China. Asbestos has been found in imported locomotives, which the manufacturer had already been warned about."

Campaign Against Foreign Control of Aotearoa spokesman Murray Horton said the sale of Transpacific to the Chinese was an example of a big foreign company being able to pay above the odds.

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"Obviously the company that's bought it thought it was worthwhile to do so. I've no doubt they will milk it for all it's worth."

He said the sale was "probably" an example of the consequences of the 2008 Free Trade Agreement between New Zealand and China.

"It allows companies to . . . basically get preferential treatment under the terms of the FTA."

Nickels said the New Zealand business was highly competed for and attracted a lot of interest. The tight contest got down to four shortlisted bidders. Nickels said it was not appropriate to name them.

Global private equity firms KKR and The Carlyle Group were also said to be bidders.

Nickels said the result was not just about price but also about the terms and conditions of each offer.

"The Beijing Capital offer was the best overall package for us but it was very tight," Nickels said.

Transpacific Industries paid $870m in 2006 for the New Zealand business, known then as Waste Management.

To a claim Beijing Capital did not pay a lot more seven years later, Nickels said that was a simplistic way of looking at it.

"A lot has changed over that time period."

High prices were paid for these sorts of businesses in 2006 but then New Zealand's worst recession in decades and the GFC happened, followed by the Canterbury earthquakes.

"Our view is it is a fair price and not a high price. In fact, the multiple is the same as CKI paid for Envirowaste 12 months ago."

- BusinessDay

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