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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - November 2009 Decisions

ANZ And ING, Yet Again

The OIO must be considering setting up its own ANZ/ING division after yet another approval being given to them. Specifically approval was given for the ANZ National Bank Limited Australia (95.7%), New Zealand (4.3%) to make an overseas investment in sensitive land, being the acquisition of rights or interests in 100% of the shares of ING (NZ) Holdings Limited which owns or controls:

• a freehold interest in one hectare of land at 792 Great South Road, Papatoetoe
• a freehold interest in 2.5 ha of land at 1A Carrington Road, Point Chevalier - Mt Albert
• a freehold interest in 5.2 ha of land at 140 Don McKinnon Drive, Albany
• a freehold interest in one ha of land at 119 Apollo Drive, Mairangi Bay
• a leasehold interest in 0.4 ha of land at 139 Quay Street Auckland
• a freehold interest in 0.7 ha of land at 24 Catherine Street Henderson
• a freehold interest in 11 ha of land at Kioreroa Road and Toetoe Road Whangarei
• a freehold interest in 3.9 ha of land at 1, 3 and 2-20 Semple St, 5 & 9 Tutu Place and 10 Titahi Bay Road, Porirua
• a freehold interest in 1.6 ha of land at 7, 9, 11 and 15 Maui Street, Hamilton
• a freehold interest in 4.3 ha of land at 25A Edsel Street and 13-21 Montel Avenue, Henderson
• a freehold interest in 90.5 ha of land at 246-254 Richardsons Line, 7-13 El Prado Dr and 239-275 Railway Rd, Palmerston North
• a freehold interest in 0.9 ha of land at 960 Great South Rd, Greenlane, Auckland
• a freehold interest in 1.10 ha of land at 180-208 Hutt Rd, Wellington.

Approval was also given for the overseas investment in significant business assets, being ANZs' acquisition of rights or interests in 100% of the shares of ING (NZ) Holdings Limited, the consideration of which exceeds $100m. Consideration was stated at A$1,760,000,000 being the total consideration in respect of an Australasian transaction of which the above investments form part of (see also the October 2009 Decisions). The vendor was ING Insurance International BV United Kingdom (26%), United States of America and Canada (25%), Netherlands (20%), Luxembourg (10%), Belgium (7%), Switzerland (6%), Various (6%).

The OIO states: "ANZ National Bank Limited (ANZ) and ING Insurance International BV (ING Insurance) currently control an incorporated joint venture in New Zealand, ING (NZ) Holdings Limited (ING NZ Holdings), the holding company of ING (NZ) Limited (ING NZ) and ING Insurance Holdings Limited, which are New Zealand-based financial services providers. ING Insurance has agreed to sell its 51% shareholding in ING NZ Holdings to ANZ. ING NZ Holdings indirectly controls sensitive land which is held in the ING Property Trust and the ING Medical Properties Trust. ING NZ also has a lease of three years or more over levels 5-9 of 139 Quay Street which is to be used for its head office. The proposed investment will enable ING Insurance to end its involvement in ING NZ Holdings and enable ANZ to acquire full ownership in ING NZ Holdings thus expanding its wealth management business".

See our October 2009 commentary regarding the approval given to the ANZ to acquire ING Australia Ltd referred to in the above approval. See our August 2005 commentary on ANZ/ING purchase of NBNZ Life Insurance and NBNZ Investment Services. And see the 2009 Roger Award Judges' Report, for more details on the shabby relationship between ANZ and ING, and how they, between them, ripped off tens of thousands of what the media patronisingly calls "mostly elderly mum and dad" investors, by means of the frozen funds scandal. The 2009 Roger Award for the Worst Transnational Corporation Operating In Aotearoa/New Zealand was won by ANZ, because of its shabby behaviour in partnership with ING. The Judges' Report can be read online here.

Decision # 200920076

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Aussies Again Forget To Get OIO Approval. This Time It's Vitaco

Retrospective approval has again been granted to Next Capital (Services A) Pty Limited as Trustee for the Next Capital Fund 1A, Next Capital (Services B) Pty Limited as trustee for the Next Capital Fund 1B and Next Capital Pty Limited as Trustee for the Next Capital Health Group Co-Investment Trust Australia (100%) for the acquisition of rights or interests in an additional 1.68% of the securities of Vitaco Health Group Limited, the value of the assets of Vitaco Health Group Limited and its 25% or more subsidiaries being greater than $100m The vendors were Existing security holders in Vitaco Health Group Limited other than Next Capital New Zealand (99.04%) Australia (0.96). The asset value was stated as $208,666,000. I say again because as you may recall from my commentary on the October 2009 Decisions, Next Capital received retrospective approval with regard to increasing its shareholding in the New Zealand Rental Group Ltd. In this latest retrospective approval the OIO states:

"This is a retrospective application. Certain transactions in May 2007, June 2008 and September 2008 caused the relative aggregate ownership interest of the Applicants in the securities of Vitaco to increase from 70.68% to 72.36%. At the time those transactions were effected, it was not appreciated that consent was required. On 31 March 2009, the Applicants also obtained consent to giving effect to a transaction or series of transactions which will result in the Applicants' acquisition of rights or interests of up to 100% of the securities of Vitaco.

"Vitaco is the holding company for two separate groups comprising Healtheries New Zealand Limited (Healtheries) and Vitaco Health (NZ) Limited (Vitaco Health) and their subsidiaries. Healtheries is a well established New Zealand business manufacturing an extensive range of health foods and supplements. Vitaco Health is a supplier of vitamins, minerals, herbs and other dietary supplements. The Applicants propose to hold their interest in Vitaco as a medium to long-term investment. The acquisition of further securities will enable the Applicants to enhance the value of Vitaco's businesses".

Next Capital, established 2005 is an Australian private equity firm specialising in providing capital for later stage expansion and small-to-mid market buyouts. Next Capital originally acquired health food and supplements manufacturer Healtheries in October 2006 and Nutra-Life in December 2006, which was consolidated in Vitaco in 2007. See our March 2009 commentary regarding Next's approval to go to 100% of Vitaco. See July 2006 and February 2009 decisions for Next Capital's original entry into New Zealand's hire and rental car industries and October 2009 for the retrospective approval received when increasing this shareholding. What next, another retrospective approval?

Decision # 200920035

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Kiwis Can't Seem To Hang On To Their Phone Networks

Tesbrit BV Austria (70.1%), Ireland (13.9%), Liechtenstein (10%), Switzerland (5%), Germany (1%) has received approval for the acquisition of rights or interests in up to 74.81% of the Ordinary shares of Two Degrees Mobile Limited, the value of the assets of Two Degrees Mobile Limited and its 25% or more subsidiaries being greater than $100m. The vendors were Existing Shareholders of Two Degrees Mobile Limited other than Tesbrit BV USA (69.4%), New Zealand (27.1%), Hong Kong (Special Administrative Region) (3.5%). Asset value stated was $170,107,313 (as at 31 March 2009). The OIO states:

"The Applicant currently owns 25.19% of the issued capital of Two Degrees Mobile Limited (Two Degrees). The Applicant intends to acquire further ordinary shares in Two Degrees, through participation in future capital raisings by Two Degrees, which may result in the Applicant increasing its percentage interest in Two Degrees. Two Degrees has recently launched a third mobile network and is now offering mobile phone services throughout New Zealand. The Applicant's investment in Two Degrees provides crucial capital to build the network, fund subscriber acquisition activities, and assist with operation costs whilst the company is in start-up phase". See our January 2010 commentary, below, regarding further changes to the shareholding in this new mobile phone network.

Decision # 200920075

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Powerco Has Another New Shareholder

Brookfield Infrastructure Group (comprising Brookfield Asset Management Inc., Brookfield Infrastructure LP and Brookfield Americas Infrastructure Fund) Various (100%), has received approval for an overseas investment in sensitive land, being rights or interests in up to 48% of the stapled securities* of Babcock & Brown Infrastructure Group which owns or controls: a freehold interest in 0.9 ha of land at 40 Alach Street, Gate Pa; and a freehold interest in 0.2 ha of land at 11 Main Rd, Tairua (SH 25). *Stapled securities are redeemable shares stapled to convertible debt notes. Ed.

Approval was also received for an overseas investment in significant business assets, as Brookfield' s acquisition of up to 48% of Babcock & Brown and its 25% or more subsidiaries is greater than $100m. The asset value was stated as $1,837,700,000 (being the book value of the assets as at 30 June 2009). The vendors were Existing Shareholders of Babcock & Brown Infrastructure Group Australia (97.1%), New Zealand (2.3%), Various (0.6%). The OIO states:

"Babcock & Brown Infrastructure Group's (BBI) key New Zealand asset is Powerco Limited, which operates electricity and gas distribution and transmission businesses throughout New Zealand. Brookfield invests in long term, high quality infrastructure and sees value in Powerco's underlying assets and in doing so will help maintain Powerco's ability to continue its operations. The investment will provide BBI with crucial access to funding". Extracts from Brookfield' s press release reported in Baynews on 20 November, 2009, follow:

"Brookfield Asset Management Inc (listed on the New York Stock Exchange [NYSE] as BAM; Toronto Stock Exchange [TSX] as BAM.A, and on the Euronext as BAMA) and Brookfield Infrastructure Partners LP (NYSE: BIP; TSX: BIP.UN) ("Brookfield Infrastructure"(1) together with Brookfield Asset Management Inc., "Brookfield") today announced the completion of the recapitalisation of Babcock & Brown Infrastructure (Australian Securities Exchange [ASX]: BBI). Concurrently with the closing, BBI was renamed Prime Infrastructure.

"In total, Brookfield invested $US1.1 billion in the recapitalisation of BBI. Brookfield's newly acquired portfolio of infrastructure assets is diversified across asset classes, geographies and regulatory regimes. As a result of the recapitalisation, Prime Infrastructure has a strong balance sheet. Its proportional debt leverage decreased from 98% to approximately 68%, and it has over $US400 million of liquidity including a newly established three-year $US300 million corporate credit facility.

"Brookfield Infrastructure invested approximately $US940 million of the total Brookfield investment to acquire a 40% interest in Prime Infrastructure and 60% of two direct investments acquired from BBI. The first investment is a 100% interest in UK-based PD Ports, a 'landlord' port which is the third largest by tonnage in the UK. The second investment is a 49.9% economic interest in Australia-based Dalrymple Bay Coal Terminal (DBCT), the largest coal export terminal in the world. Brookfield Asset Management and other co-investors have acquired the remaining 40% interest in the two direct investments. Brookfield Infrastructure may sell down up to 10% of its interest in the two direct investments to co-investors.

"With the completion of the transaction, Brookfield Infrastructure's utility segment will be comprised of premier assets such as Transelec, Natural Gas Pipeline Company of America, Powerco, International Energy Group, Ontario Transmission and Tasmania Gas Network. Its transportation portfolio will be comprised of high quality businesses such as DBCT, WestNet Rail, PD Ports and Euroports. Finally, with Longview and Island Timberlands, the portfolio will also include some of the highest quality timberlands in North America. Going forward, Brookfield Infrastructure will be able to grow from a very solid foundation, with in-place cash flow supported by regulated and contractual frameworks that will account for over 70% of its net operating income… Brookfield Asset Management Inc. is focused on property, renewable power and infrastructure assets and has over $US90 billion of assets under management. The company's common shares are listed on the New York and Toronto stock exchanges under the symbols BAM and BAM.A, respectively, and on Euronext under the symbol BAMA. For more information, visit www.brookfield.com.

"Brookfield Infrastructure Partners LP was established by Brookfield Asset Management Inc. to own and operate certain infrastructure assets on a global basis. Brookfield Infrastructure operates high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time. Its current business consists of the ownership and operation of premier utilities, transportation and timber assets in North and South America, Australasia, Europe and China. It also seeks acquisition opportunities in other infrastructure sectors with similar attributes. Brookfield Infrastructure's units trade on the New York and Toronto stock exchanges under the symbols BIP and BIP.UN, respectively. For more information, please visit Brookfield Infrastructure's Website at www.brookfieldinfrastructure.com. Prime Infrastructure (ASX: BBI) is a specialist infrastructure entity which provides investors access to a diversified portfolio of quality infrastructure assets. Prime Infrastructure's investment strategy focuses on owning, managing and operating quality infrastructure assets in Australia and internationally. For further information please visit the company's Website at www.bbinfrastructure.com."

See our October 2004 commentary regarding Babcock's original and controversial purchase of Powerco. Babcock & Brown, a former multi-billion dollar high flying Aussie based investment bank, has been one of the more spectacular casualties of the 2008 credit crunch, after clearly overextending itself in previous years (see our June 2007 commentary re its purchase of Alinta). In 2009 it was ejected from the Australian Securities Exchange for falling to file accounts. It eventually reported a $A5.4billion loss, the second largest in Aussie corporate history! Since then it has been selling off assets and now appears to have come off "life support", thanks to Brookfield.

In February 2009, Babcock sold a 58% share in Powerco to Queensland Investment Corporation (QIC) Private Capital Pty Limited's, (Australia 100%), and also that month sold its interests in retirement villages to Lendlease Corporation. See our February 2009 commentaries for details on both of these sales. See September 2007 for details of Brookfield's purchase of the Multiplex Group, including 50% of Pegasus Town, just north of Christchurch, and June 2008 for details of a much smaller land purchase in Takapuna.

Decision # 200920070

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German Share Shuffle Of LeasePlan

In two related and simultaneous approvals Volkswagen AG Germany (73.1%), Various (20.1%), Qatar (6.8%) has received approval for the acquisition of rights or interests in 50% of the shares of Global Mobility Holding BV, the value of the assets of Global Mobility Holding BV and its 25% or more subsidiaries being greater than $100m.The vendor Ultimate Existing Shareholders of Global Mobility Holdings BV other than Volkswagen AG being: Olayan Group 25% [100% Saudi Arabia] Mubadala Development Company PSJC 25% [100% Abu Dhabi]. The asset value stated was $195,556,000 (being the book value of LeasePlan New Zealand Limited's assets as at 31 December 2008). The second approval was for the same asset, this time the applicant being Fleet Investments BV Germany (100%) and the vendor being Volkswagen AG Germany (73.1%), Various (20.1%), Qatar (6.8%). As the OIO states in the case of the second approval:

"The Applicant (Fleet Investments) has entered into a Joint Venture Agreement with Volkswagen AG under which Volkswagen who currently owns 50% of Global Mobility Holding BV (GMH) will acquire the remaining 50% of the shares in GMH and then contemporaneously sell a 50% interest in GMH to the Applicant. This will result in the Applicant acquiring an indirect interest in the shares of LeasePlan New Zealand Limited. The joint venture will preserve LeasePlan's car brand independence". LeasePlan New Zealand Limited, a company specialising in car leasing and fleet management. Further information concerning the above details was revealed in LeasePlan's press release of 23/6/09 ("Friedrich von Metzler to become 50% shareholder of LeasePlan"):

"LeasePlan has announced that Fleet Investments BV, an investment company of the German banker Friedrich von Metzler, will become a 50% shareholder of LeasePlan. This transaction follows the decision at the end of 2008 of both Mubadala Development Company and the Olayan Group to divest their 25% stakes in LeasePlan. Subject to approval of the relevant anti-trust and supervisory authorities, the transaction is expected to close in the Northern Hemisphere autumn of 2009. Volkswagen Group, which continues its 50% interest in LeasePlan, has reconfirmed the high strategic importance of multi-brand fleet management for their Group.

"Vahid Daemi, Chairman of the Managing Board and Chief Executive Officer (CEO) of LeasePlan comments: 'We look forward to continuing our strategy as one of the leading independent financial services and fleet management providers in the world with the support of two strong 50% shareholders'. Charles Willmer, Managing Director of LeasePlan in New Zealand said: 'The German bank's investment provides a timely and independent testament to the long term future of LeasePlan in these days of uncertainty within the finance sector'.

"Vahid Daemi said: 'Despite challenging market developments we achieved good results in 2008. Our net result from continuing operations amounted to €208 million, a reduction of 13.7% compared to 2007. The slight reduction compared to the previous year is mainly caused by the significant downturn in the second hand car markets. In 2008 we have been able to expand our network with the start-up of LeasePlan Mexico and significantly improved our position in France through the acquisition of Daimler Chrysler Fleet Management'.

"LeasePlan was the first Dutch bank to be granted a guarantee under the 2008 Credit Guarantee Scheme of the State Bank of the Netherlands. So far LeasePlan has launched two Government-guaranteed issues in Europe and one in the US raising in total over €4 billion. Further issuances under the Government guarantee scheme are expected. Access to the Government guarantee scheme, a significant credit facility from its parent and further securitisations of lease assets, have put LeasePlan on a healthy liquidity footing.

"Charles Willmer comments: 'In view of the current economic circumstances we will, for the time being, slow down the pace of our expansion. Our business strategy will not change, but our focus will. For example, we will even more actively develop our client relationships into strategic long term business partners and identify for them those added value services that minimise risk and thus financially benefit both parties. Although 2009 is expected to be even more challenging than the previous year, we are confident that our organisation is well placed to achieve satisfying results this year'.

"LeasePlan was established in Holland in 1963 and consists of a growing international network of companies engaged in fleet management and finance activities. They employ over 6,000 people in 30 countries. In total, the Company manages 1.4 million vehicles worldwide and has a consolidated lease portfolio of over €14 billion. LeasePlan has held a universal bank licence since 1993 and is regulated by the Dutch Central Bank. They established operations in New Zealand in 1993". Friedrich von Metzler is not your typical investment banker: The bank he has headed since 1971 has been in his family for 11 generations and 333 years!

Decision # 200920056 and 200920057

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Synlait Wants To Milk More Of The Canterbury Plains

Synlait Limited on behalf of Synlait Milk Limited and Unknown Overseas Persons Various (100%) has received OIO approval to acquire rights or interests in up to 100% of the shares of Synlait Milk Limited which owns or controls:

• a freehold interest in 445.4 ha of land at Irvines, Waikimikia, Rakaia Selwyn & Heslerton Roads, Dunsandel;
• and a freehold interest in 229.9 ha of land at Irvines Road, Dunsandel.

Approval was also received for an overseas investment in significant business assets, being Synlait's acquisition of rights or interests in up to 100% of the shares of Synlait Milk Limited, the value of the assets of Synlait Milk Limited and its 25% or more subsidiaries being greater than $100m. The asset value was stated as $165,000,000. The vendors were Existing Shareholders in Synlait Limited New Zealand (75.4%), Japan (22.5%), Ireland (2.1%). The OIO states:

"Synlait is proposing to raise up to $165 million of new capital by way of an initial public offering made in accordance with the Securities Act 1978 (Public Offer) to members of the public for shares in Synlait Milk Limited (Synlait Milk), Synlait's wholly-owned subsidiary company which owns and operates the milk powder processing facility. The Public Offer will comprise an offer by Synlait Milk of new shares and will also include a secondary offer by Synlait of existing shares in Synlait Milk. The purpose of the Public Offer is to raise funds to fund the expansion of the milk processing facility and to reduce debt for Synlait. The new capital raised through the Public Offer will enable Synlait to fund the expansion of its milk processing facility described above".

Synlait has stakes in at least six mid-Canterbury dairy farms within 15km of Te Pirita, between Rakaia and Dunsandel. Of the 80,000 cows which supply the company, 15,000 are company-owned. The Dunsandel plant processes about 1% of the nation's milk flows. If Synlait wants to expand its facility, then clearly it is expecting to get more milk, but where's it coming from? Unless Fonterra suppliers jump ship, then it must be from growth in its existing suppliers or future dairy conversions in the region. In a low rainfall catchment, growth in the Canterbury dairy industry is only possible with access to huge volumes of water for irrigation. According to Environment Canterbury (ECan) water was fully allocated in the area. But as we now know, ECan was sacked by the Government and replaced by commissioners who no doubt will be more "sympathetic" to the desires of Synlait and co.

And the Central Plains Water scheme (CPW) appears pivotal to Synlait's growth plans. Originally CPW and Synlait made competing consent applications to take water from the Rakaia River to irrigate dairy farms. The High Court awarded Synlait first priority, which was overturned by the Court of Appeal which backed CPW. But just as the fight was headed to the Supreme Court, the two parties reached an agreement to share the water and build a revised water scheme. The original CPW scheme involving a 55 metre high dam in the Waianiwaniwa Valley was looking likely to be rejected. A new "watered-down" plan involving a headrace canal has recently received approval. This involves taking up to 40 cubic metres per second from each of the Rakia and Waimakariri Rivers, and a requiring authority impacting approximately 60 properties. However Synlait's plans to raise more capital appear cloudier. Firstly, as reported in Farmers Weekly (16/11/09, " Heavy weather for Synlait ahead of public share float", by Tim Fulton):

"Acclaimed Mid Canterbury dairy processor Synlait has made a group loss of just over $42m in the past year and is likely to lose key lender and shareholder Mitsui in a disagreement over its planned public share float. Such a listing would see Synlait Ltd become a cornerstone shareholder in Synlait Milk. Japanese company Mitsui, which has just over $30m in Synlait shares and rights, wants out of the company if a proposed float on the NZX (NZ Stock Exchange) is completed.

"A listing for Synlait Milk is part of a strategy to pay off debt at the company's farms and Dunsandel processing facility, while funding an additional plant. Synlait runs its manufacturing site and farms as a seamless business but is revisiting that concept, saying generating sufficient new capital for Synlait Farming 'has proved very difficult at reasonable value'. In a notice to shareholders on November 6 (2009) Synlait founder and managing director/CEO John Penno said the company's future is in the manufacturing and marketing of high value dairy ingredients, reflecting the fact that its returns from processing were higher than from farming. Farms were a disproportionate share of the company's asset base at a time when it needed to continue growing its manufacturing base. Besides meeting demand from customers and local farmers offering milk supply and opening up new product options, Synlait also needed to 'de-risk' its single plant site by building a second one.

"The essential steps in the new strategy were raising new capital to strengthen the company's balance sheet, which would also provide the means for redevelopments to processing facilities, Penno said. There would also be a new group structure, separating Synlait Milk and Synlait Farming. The latter would sell or re-syndicate two or three farms this season 'to build balance sheet strength after large operating losses and reductions in land and livestock values'. This farm sale process has already started with the sale of a property at Thompsons Track on September 1 (09) for $4.6m. Farm syndicate company MyFarm is also set to take possession of another Synlait property, Sakura.

"Meanwhile the company's Dunsandel and Tapatoru farms will be transferred to Synlait Milk 'as properties strategically important to the future of the milk processing and value-added strategies'. Penno's letter to shareholders said that in many senses it would continue to be business as usual for the company. Most of the changes were 'only structural in nature' and it was not expected there would be any changes at operational level. He acknowledged that advice to shareholders and the Mitsui withdrawal notice was 'likely to raise as many questions as they answer' but the company was prevented by the Securities Act from sharing any more information than it had. Shareholders would receive a copy of the prospectus and investment statement once the company had confirmed plans for the initial public offering (IPO), which it duly announced on November 12 (09).

Synlait has scheduled its annual meeting for its site at Dunsandel on December 11 and will also have a meeting in Hamilton on December 10. Mitsui has indicated it may remain a shareholder if the Synlait Milk float fails". And a few days later, the float did fail. As reported by Tamsyn Parker in the New Zealand Herald on 25/11/09:

"Concerns about the largest shareholder selling out and high debt levels are being blamed for a lack of support for the float of dairy firm Synlait. The South Island company yesterday said it would defer its plan for an initial public offering and listing on the Stock Exchange in a move that surprised the market. Synlait had been expected to reveal the details of the float any day in a three stage process that was to raise around $150 million. But in a brief statement the company said it had received strong support for the IPO from local institutions and the lead manager First NZ Capital but the overall level was insufficient to proceed at this time. 'Following a pre-marketing programme to brokers and local and international institutional investors, Synlait Milk Limited (Synlait) advises that it has deferred its plans to IPO'.

"The company, which was set up in 2007 when its owners split from Fonterra, had been expected to use the money to build a second milk processing plant on its existing site at Dunsandel in Canterbury. The move would have allowed the business to double its capacity to process raw milk into a variety of milk powders for export. The Business Herald understands Synlait had talked to institutions about selling the shares for $1.60 a share but a price could not be agreed on.

"Paul Richardson, Chief Investment Officer at BT Funds Management, the fund management arm of Westpac, said it had decided not to support the float because there were a number of other opportunities in the market at the moment that had ranked above the Synlait offer. 'We had a look at it but it didn't quite meet our criteria on risk and return'. Richardson said Synlait appeared to have quite high debt. He also expressed concerns over its largest shareholder Mitsui & Co using the float as a way to sell out of the business.

"Mitsui & Co bought into Synlait in 2007 and owns around 22% of the business. It is understood to have an agreement that allows it to sell its stake on floating the business. Other commentators were also worried that Synlait was only floating its production arm, Synlait Milk, not the part of the business which owns the dairy farms. Broker Hamilton Hindin Greene's James Smalley said the pulling of the float had come as a surprise and was a disappointment. Smalley believed it showed the appetite by Kiwi investors had been reduced in the wake of the global financial crisis. 'It's not necessarily a reflection on Synlait itself but how difficult the market is for equity IPOs at the moment'. Smalley said investors may also have been concerned about the long-term payback period associated with it. 'It involved a new development that wasn't going to pay back until 2012. Perhaps investors weren't happy with the long-term nature of it'. Smalley said it was bad news for the NZX". Given the "white gold rush" mentality of the farming community, the recent approval of the CPW scheme and appointment of "sympathetic" commissioners, I am sure Synlait will have little trouble in finding alternate investors, despite their initial public offering turning sour. In July 2010 it was announced that Bright Dairy of China would invest $82 million for 51% of Synlait's wholly- owned subsidiary, Synlait Milk (but not Synlait's farms). Ed.

Decision # 200910064

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Chinese Take Cornerstone Shareholding In PGG Wrightson

In what is a clear example of growing Chinese interest in our farming (read food) sector, Agria Corporation Virgin Islands, British (38.74%), United States of America (32.1%), China, People's Republic of (22.21%), Cayman Islands (6.95%) received approval for the overseas investment in sensitive land, being acquisition of rights or interests in up to 19.99% of the ordinary shares of PGG Wrightson Limited which owns or controls:

• a leasehold interest in 8.6 ha of land at Wackrow Street, Taumaranui
• a leasehold interest in 7.1 ha of land at Temuka Road, Temuka
• a freehold interest in 18.6 ha of land at Owaka Hwy (Finnegand)
• a freehold interest in 18.8 ha of land at Tinwald, Ashburton
• a leasehold interest in 18.1 ha of land at Saleyard Rd, Bell Rd and Church Rd, Matawhero, Gisborne
• a freehold interest in 23.6 ha of land at 41-77 Centennial Park Rd, Wellsford
• a freehold interest in 4.5 ha of land at Cotter Street, Te Kuiti
• a freehold interest in 19 ha of land at 57 George Street, Tuakau
• a freehold interest in 15.5 ha of land at Norfolk Rd, Masterton
• a freehold interest in seven ha of land at 16 Takapau Road, Waipukurau
• a freehold interest in 1.4 ha of land at Briscoe Street, Awakino
• a leasehold interest in 7.6 ha of land at Lee Road, Hamilton
• a leasehold interest in 0.5 ha of land at Gladstone Road, Richmond
• a freehold interest in one hectare of land at 292 Mersey Street, Invercargill
• a freehold interest in ten ha of land at 784 North Road, Lorneville, Invercargill
• a freehold interest in 2.9 ha of land at State Highway 25, Coroglen
• a freehold interest in 1.4 ha of land at 22 Dobson Street, Ashburton
• a freehold interest in 7.5 ha of land at Esk Road, Stratford
• a freehold interest in 4.3 ha of land at 500 Maraekakano/Southhampton Street, Hastings
• a freehold interest in 20.5 ha of land at Cnr Shands Rd & Marshs Rd, Prebbleton
• a freehold interest in 24.6 ha of land at Kiwi Road, Wairoa
• a freehold interest in 23.1 ha of land at Young Road, Rangiuru
• a freehold interest in 7.3 ha of land at Mangakakahia Road, Kaikohe;
• a freehold interest in 96.2 ha of land at Tancreds Road, Lincoln
• a leasehold interest in 4.2 ha of land at Tancreds Road, Lincoln
• a leasehold interest in 0.6 ha of land at Evans Street, Timaru
• a leasehold interest in 5.3 ha of land at 32 Pandora Road, Napier
• a freehold interest in 0.9 ha of land at Tuhua Road, Ongarue
• a freehold interest in 2 ha of land at Curletts and Wigram Roads, Christchurch.

The vendor was Existing Shareholders of PGG Wrightson Limited New Zealand (87%), various (13%). The asset value was stated as $1,544,146,000. The OIO states: "PGG Wrightson Limited (PGW), a company listed on the NZ Stock Exchange (NZSX), is New Zealand's largest agricultural services company. PGW is undertaking a capital raising, in which Agria proposes to participate. Upon completion of the capital raising process it is likely that the Applicant will have acquired up to 19.99% of the ordinary shares of PGW. This will result in PGW becoming an overseas person.

"The proposed investment by the Applicant will enable PGW to use the proceeds of the proposed investment to repay debt and to continue its business operations with less financial pressure. This is likely to provide further operational certainty to PGW. The Applicant and PGW will enter into a Cooperation Agreement under which they will agree to take certain steps in relation to agricultural research and development, investment and establishment of various joint ventures internationally".

Agria appears to have got a bargain, which is not surprising given PGG Wrightson's financial woes over the past couple of years. The OIO lists the asset value at over $1.5 billion, yet as you will see below, Agria gets 13% of the company for $36 million, which values the company at only $277 million. Details of the actual deal between Agria and PGG Wrightson, along with background on Agria were reported by Liam Baldwin in the National Business Review (NBR), firstly on 16/10/09:

"Chinese company Agria Corporation has agreed to buy 13% of rural supplies company PGG Wrightson for $36 million. This morning PGW announced a trading hold on shares pending the announcement of its new cornerstone investor through a strategic partnership. Agria has signalled it would like a significant interest in the company but PGW chief executive Tim Miles said there was no move for a takeover. 'We will remain a New Zealand business', he said.

PGW chairman Keith Smith said this morning the arrangements being progressed with Agria had the potential to create significant long term value for both companies. 'The co-operation agreement identifies a range of opportunities for PGG Wrightson and Agria to work together to create value. It will provide a framework in which intellectual property, management know-how and financial resources can be deployed jointly and for mutual benefit', he said.

"He said the programme would be consistent with the company's existing business platform. 'Our primary focus will remain on our customers in New Zealand, Australia and South America and on improving performance in our existing business and markets while exploring new opportunities'. PGW is committed to raising $200 million by March (2010) in order to meet the conditions of a renegotiated amortising debt facility. The PGW board announced today it was considering options for an equity raising such as a rights issues, possibly as soon as November (09).

"The agreement requires PGW to satisfy the Chinese company that sufficient funds would be raised to enable the debt to be repaid. In addition, the companies have agreed to establish a cooperation agreement focusing on investment in specific areas within the agriculture sector. They would look at joint development and commercialisation of seed cultivars and intellectual property owned by PGW licensed in China and beyond. PGW would also have access to Chinese intellectual property (IP). Also, Agria has a relationship with the China National Academy of Agricultural Science (CNASS). The two organisations jointly own the China Agricultural Seed Company which commercialises the academy's IP.

"Livestock would also be a focus in China with the companies working together to initiate reform in markets, particularly with the establishment of an auction system. The development of research farms in China working on livestock, plants, soil and bioscience are planned. Agria will work with PGG Wrightson Finance to identify additional funding options for growth through third party sources. Both companies will work together to investigate the development of a joint venture rural services business in China. Using PGW's experience with its shareholding in NZ Farming Systems Uruguay, the companies will consider large scale dairy conversion in China".

Four days later, Liam Baldwin brought some interesting revelations on Agria to light, also in the NBR: "Agria Corporation, the new cornerstone shareholder in farm service and supply company PGG Wrightson, considered investment in other New Zealand companies before cementing a deal on Friday. Beijing-based PricewaterhouseCoopers (PWC) associate director John Layburn said Agria had been involved in discussions with a number of companies over the last two years - essentially since it listed on the New York Stock Exchange in November 2007. 'PGW is the one we chose', he said. He refused to say which other companies were considered. Mr Layburn, along with Agria senior vice president David Pasquale in New York and PWC partner in Christchurch Craig Armitage spoke to NBR following revelations that the Chinese company was facing legal class actions in the United States. In addition to that, Agria has failed to file its 2008 financial statements by a June (09) deadline and applied, and was granted, a six month extension. Until the company provides the 2008 paperwork to the New York Stock Exchange (NYSE), shareholders in both it and PGW are left hanging about its 2009 progress.

"Meanwhile the lure of Agria has been too much for Mr Layburn who used to work with chief executive Xie Tao at PWC. At the end of this week, Mr Layburn will become the chief investment officer for Agria, following Mr Tao who, as a partner in the Chinese division of PWC, made a reportedly shock exit from the consultancy after 20 years of service in August. Mr Tao officially started with Agria on September 14 (09). Mr Tao replaced Alan Lai who remains as chairman of Agria. He is also the sole director of Brothers Capital, the Singaporean-based company that is the major shareholder of Agria.

"Mr Pasquale said Agria has been in contact with NYSE 'every step of the way' about the late filing of its financial reports from 2008. 'Agria has been extremely upfront with investors about the whole issue'. Mr Pasquale said NYSE rules prevented the company from furnishing shareholders with any information about Agria's 2009 performance until the 2008 documents are filed. The company claimed the issue arose because of allegations made by a former employee of its operating arm in China - Primalights III Agricultural Development Company.

"One allegation related to the number and price of sheep bought by the company in August 2008. Another was about the authenticity of sales contracts, bank statements and tax invoices. Until the investigations were completed and its biological assets were valued, the board of directors will not approve the financial statements. Mr Layburn said during 2008, Agria changed its reporting method from US GAAP (Generally Accepted Accounting Principles) to IFRS (International Financial Reporting Standards). Preliminary audits around the issues raised by the former employee have shown up nothing and Mr Layburn said it is hoped the company will file its financial statements with the NYSE by December (09). The last result reported by the company was for the third quarter of the 2008 financial year. For the nine months to September 2008, Agria reported an operating loss of $US104.9 million using today's foreign exchange rates, partially due to a share-based compensation expense of about $US90 million relating to Primalights.

"Agria has agreed to buy 13% of PGG Wrightson for $36 million and could increase that shareholding when the company attempts to raise more capital next month with another share issue. However, John Layburn said the bigger factor is the cooperation agreement between the two companies. 'The strategic investment is just one element of it', he said. The cooperation agreement has identified a number of areas the two companies plan to work together from seed propagation the intellectual property associated with it, to livestock expertise and sales and also retail. Mr Layburn said the next step is going into more detailed business planning, across all sectors of discussion.

"The NZ China Free Trade Agreement (FTA), which officially began a little over a year ago, was a factor in the decision to do business here. 'And part of the thinking behind that is the relative importance of agriculture in each country', he said. 'There are 100 million farmers in China. It's a very important sector'. Mr Layburn said the strengths of PGW coupled with those of Agria led to a good fit, particular in the area of seeds. 'Also, dairying is very exciting in China'. Craig Armitage said the co-operation agreement was a tangible demonstration of the FTA working and showed that New Zealand was clearly on the Chinese radar".

I'm sure New Zealand is on the Chinese radar! With all those mouths to feed and New Zealand farmers recognised as some of the most efficient food producers in the world, it makes perfect sense for China to "buy" New Zealand. The FTA is clearly working for China, but is it working for us? And one final comment on PGG Wrightson's demise and slipping into Chinese control: Is this another legacy of former CEO Craig Norgate and co? As reported in the NZ Herald (8/5/10): "It is estimated nearly $1 billion of investor wealth has been wiped out in the past two years in rural companies associated with Norgate, with one key business partner losing more than $60 million".

To use a Chinese proverb: "When a small man casts a long shadow the sunset is near"! In other words, PGG Wrightson will eventually come under Chinese ownership and, given PGG's penetration of the NZ rural sector, particularly real estate sales, how many future rural property sales in Aotearoa will end up with new Chinese owners? The sun isn't just setting on PGG Wrightson, it's setting on Kiwi ownership of New Zealand!

Decision # 200920070

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Another Aussie-Owned Supermarket For Palmerston North

General Distributors Limited Australia (99%), New Zealand (0.8%), Various (0.2%) have received approval to acquire a freehold interest in one hectare of land at Fernlea Avenue & Roberts Line, Palmerston North. Consideration was $2,812,500; the vendors were Palmerston North Industrial & Residential Developments Limited New Zealand (100%). The OIO states: "The Applicant is the property owning entity for Progressive Enterprises Limited (Progressive) which through its subsidiaries operates supermarkets under the Woolworths, Foodtown, and Countdown supermarket brands. The Applicant proposes to acquire the land to develop a supermarket. The proposed development of the new Countdown supermarket is part of the Applicant's strategy to grow its business in New Zealand". See our June 2005 commentary for details on other land purchases by General Distributors. Generally speaking however, once these supermarkets have been built, they are sold and leased back by Progressive (see April 1999, December 2002, and September 2004)

Decision # 200920049

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Other November Decisions

Tiromoana Station Limited New Zealand (50%), Australia (45.4%), Malaysia (4.6%) received approval to acquire: a freehold interest in 0.25 ha of land at 301 Mt Cass Rd, Waipara, North Canterbury; and a freehold interest in 3.37 ha of land at Mt Cass Rd, Waipara, North Canterbury. Consideration was $127,000; the vendor was Canterbury Waste Services Limited Australia (90.8%), Malaysia (9.2%) and Hurunui District Council New Zealand (100%) The OIO states:

"Tiromoana Station Limited (TSL) is the land owning subsidiary of Transwaste Canterbury Limited (TCL) a joint venture between Canterbury Waste Services Limited (CWS) and various local councils in the Canterbury region which operates the Kate Valley landfill. The land being acquired comprises:

(a) 2,514 square metres from CWS; and

(b) Small areas of land comprising in total 3.3658 ha from the Hurunui District Council as part of a road legalisation process for Mt Cass Road.

The transfer of the land from CWS to TSL will result in all of the land associated with the Kate Valley landfill being owned by TSL. The transfer of the land not used for roading purposes to the Applicant is part of the process to legalise the Mt Cass Road to ensure that the physical roadway is aligned with the legal road. All of the land is contiguous and will be managed by TSL as one property".

In an article in the NZ Herald (22/7/00), under the heading "Riches in a flick for farm owners", Anne Gibson reported on the original acquisition of the land for landfill purposes: "Real estate can be gold one day, a dump the next - and still worth gold. So it was with a deal that delivered listed property company Southern Capital a $2.5 million profit for owning a North Canterbury farm for only a month. Now the farm could be turned into a landfill. The Wellington real estate company said yesterday that it had sold the sheep station for a healthy $7 million. Southern paid $4.5 million for it just last month.

"Acknowledging that $2.5 million was a good and quick profit, executive chairman Graeme Wong said the price was 'recompense' for his company foregoing opportunities to develop the property. Southern had already announced a raft of options for the Tiromoana Station, including forestry, vineyards and lifestyle block subdivisions. However, Mr Wong also said the profit was a sensitive issue for all the companies involved. Southern sold the vast coastal property to Canterbury Waste Services, a joint venture between Waste Management and EnviroWaste. Canterbury Waste is investigating the feasibility of a landfill on the site, although it has yet to seek permission.

"The former Landcorp farm, about 35 minutes north of Christchurch, is wintering about 15,000 animals. Canterbury Waste general manager Gareth James said preliminary investigations indicated the potential for several landfills in some of the remote valleys where there were no downstream or upstream water users. Only small parts of the property would be suitable, he said. They were in isolated hill country, away from the developing winegrowing and tourism areas of North Canterbury. 'A landfill would use about 50ha of a valley. The size of the property will allow us to carry out substantial planting to provide effective screening around the landfill'. Pegasus Bay, Canterbury House and Chancellor Wines adjoin Tiromoana's boundaries".

See our commentaries for October 2001 and March 2002 regarding the former Overseas Investment Commission's approval of the original purchase of this land by CWS and our September 2007 commentary regarding Transpacific Industries Group Limited buyout of EnviroWaste Services Limited's 50% share of CWS. Canterbury Waste Services Limited (CWS) is owned by Transpacific Industries Group Limited which had previously taken over Waste Management Ltd, to become Australasia's largest waste company (see our commentary for June 2006 for further details). Transpacific in turn was more recently taken over by WP X Holdings BV (see our March 2009 commentary).

Decision # 200920050

Sara Melanie Smerdon Australia (100%) received approval to acquire a freehold interest in 17.1 ha of land at 23 Mahakirau Road, The 309 Road, Coromandel. Consideration was $210,000; the vendor was The Oaks Centre Solicitors Nominees Limited New Zealand (100%). According to the OIO, Smerdon intends to reside indefinitely in New Zealand and is acquiring the property to build a home to use as a residence, together with her partner.

Decision # 200920037

And finally for November, Ger Beemsterboer (NZ) Limited Netherlands (100%) received approval to acquire rights or interests in 25.1% of the shares of Barneswood Farm Limited which owns or controls a freehold interest in 22.7 ha of land at 858 Methven Highway, RD 6, Ashburton 7776. Consideration was just $251! The vendor was Existing Shareholders of Barneswood Farm Limited other than Ger Beemsterboer (NZ) Limited New Zealand (100%). The OIO states:

"The Applicant already has a shareholding in Barneswood Farm Limited (BFL), a company which owns farmland at Ashburton used for seed production. The Applicant intends to purchase a further 25.1% of the shares in BFL, increasing its shareholding to 50% in total. The owner of the Applicant is Director of a company which imports to Holland from New Zealand a large number of seeds from Midlands Seeds Limited (Midlands). Midlands leases the land at Ashburton from BFL and undertakes field trials for seed research there. The Investment will give the Applicant some control over the land upon which field trials by Midlands are carried out and are likely to strengthen and cement the business relationship between the Applicant and Midlands". Given the price paid ($251 for a 25.1% interest in 22.74 ha, or $44 per hectare!) clearly the field trials are having a detrimental effect on the land.

Decision # 200920053

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Summary Statistics November 2009

Asset value

	Nov 2009	Jan-Nov 2009	Jan-Nov 2008
Number of approvals	12	143	123
Net Investment $	-92,125,606 *	742,981,485 *	1,239,590,960
Gross value of consideration	246,362,073 *	7,805,380,644 *	5,759,994,903
Asset Value	4,316,731,313	20,841,445,757	2,745,747,773

* Stated as confidential by the OIO, but calculated by CAFCA from subsequent OIO tables

Freehold land approved for sale

	Nov 2009	Jan-Nov 2009	Jan-Nov 2008
Number of approvals	8	118	89
Net land area (ha)	816	19,006	12,789
Gross land area (ha)	1,155	261,634	31,032

Other interests in land approved for sale (for example leases and crown pastoral leases)

	Nov 2009	Jan-Nov 2009	Jan-Nov 2008
Number of approvals	2	20	27
Net land area (ha)	45	1,199	24,848
Gross land area (ha)	52	90,824	37,978

Applications denied

	Nov 2009	Jan-Nov 2009	Jan-Nov 2008
Number of declines	0	0	4
Total proposed purchase price ($)	0	0	4,633,252,517
Total proposed area to be acquired (ha)	0	0	3,163

Fishing Quota

As usual there was no fishing quota approved for sale this month.

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Campaign Against Foreign Control of Aotearoa,
P.O. Box 2258
Christchurch.