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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - April 2010 Decisions

Aussie private equity fund consolidates holding in Summerset

In a further consolidation our retirement industry ownership by overseas, especially Australian interests, approval was received by QPE Funds Management Pty Limited as Manager of Quadrant Private Equity No. 2A and No. 2B Funds Australian Public (100%) for the acquisition of rights or interests in 100.0% of the shares of Summerset Group Holdings Limited which owns or controls:

• a freehold interest in 5.9 hectares of land at 166 - 168 Ruapehu Drive, Palmerston North; and
• a freehold interest in 7.1 hectares of land at Park Road, Katikati; and
• a freehold interest in 9.6 hectares of land at Joyce Adams Place, Waimauku; and
• a freehold interest in 5.9 hectares of land at 104 Realm Drive, Paraparaumu; and
• a freehold interest in 6.8 hectares of land at Mansel Drive, Warkworth; and
• a freehold interest in 2.4 hectares of land at Shetland Street, Dunedin; and
• a freehold interest in 6.9 hectares of land at 206 Dixon Road, Rukuhia, Hamilton; and
• a freehold interest in 5.4 hectares of land at Racecourse Road, Trentham.

Approval was also received for an overseas investment in significant business assets, being the QPE's acquisition of rights or interests in 100.0% of the shares of Summerset Group Holdings Limited, the consideration of which exceeds $100m. Consideration was stated as confidential. The vendors were AMP Capital Investors Limited Australian Public (91%) New Zealand Public (9%).

The OIO states: "Pursuant to a consent granted to the Applicant on 12 March 2009 (case No.200821648) the Applicant currently owns 48.8% of Summerset Group Holdings Limited (Summerset). Summerset owns 18 retirement villages and development sites throughout New Zealand. The Applicant proposes to acquire an additional 48.8% of the shares in Summerset. The Applicant may also increase its shareholding in Summerset through participation in a proposed capital raising".

Summerset is New Zealand's third largest retirement village operator with 1200 retirement village units (villas and apartments), 300 rest home and hospital beds and 450 staff. See our March 2009 commentary regarding Quadrants original purchase (via a joint venture with AMP Capital Investors) of its nearly half share in Summerset.

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Aussie takes control of ING property fund

Lend Lease Corporation Limited Australian Public (77%), United States Public (8.9%), United Kingdom Public (7.3%), Various overseas persons (6.8%) received approval to acquire a freehold interest in 3.3610 hectares of land at 24 Main Road, Tawa, Wellington, and an overseas investment in significant business assets, being the Applicant's acquisition of property in New Zealand used in carrying on business in New Zealand for consideration exceeding $100m, that property being the acquisition of the assets of ING Retail Property Fund Australia, including sensitive land. Consideration was $185,130,000; the vendor was Armstrong Jones Management Pty Limited acting as trustee of the ING NZ Retail Fund, ING Real Estate International Investment II BV, Netherlands (30%), Prudential Properties Trust Pty Limited as trustee for Prudential Australia Property Trust, Australia (20%), GIC Real Estate, Singapore (20%), ABP Investments, Netherlands (20%), SBA Artsenpensioenfondsen, Netherlands (10%).

The OIO states: "The Applicant was recently selected as the preferred bidder to acquire the assets of the ING Retail Property Fund Australia. The acquisition will include four assets in New Zealand being Dress Smart Tawa, Meridian Mall Dunedin, Dress Smart Hornby and Dress Smart Onehunga. The acquisition is part of the wider acquisition of all of the assets of the ING Retail Property Fund Australia and is consistent with the Applicant's desire to expand its global portfolio of commercial shopping centres and invest in quality, well performing assets".

See our March 2003 commentary for details of INGs original purchase of the Dress Smart factory outlets. Lend Lease has received OIO approval for a number of purchases in the past. In April 1998 it purchased a 50% interest in Kiwi Income Property companies. It owns 25 % of Morrison & Co which manages Infratil, an investor in utilities including Wellington Airport, Port of Tauranga, Central Power and Trust Power, and was a nominee for last years Roger Award.

See our detailed March 1999 commentary for details of Infratils' and Lend leases chequered history of infrastructure asset ownership.

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Tegels chickens are still home to roost, as tenants

NZ Poultry Enterprises Limited Australian Public (42.9%), United States Public (30.4%), New Zealand Public (15.2%), United Kingdom Public (7%), and Various overseas persons (4.5%) has received approval for the acquisition of a leasehold interest in 3.4698 hectares of land at 250-270 Flanagan Road and 95 Tegal Rd, Drury, Papakura, and an overseas investment in significant business assets, being the Applicant's acquisition of property in New Zealand used in carrying on business in New Zealand with assets value exceeding $100m, that property being a leasehold interest in nine properties, including sensitive land. Consideration was $133,200,000. The vendor was Manu Fund Limited Phillip George Nevell, New Zealand (50%) and Timothy Mark Fitzgerald, New Zealand (50%)

The OIO states: "The Applicant indirectly owns the freehold interest in the relevant land and all of the shares in Tegel Foods Limited (Tegel), a fully integrated poultry producer involved in the breeding, hatching, feeding, growing, processing, and marketing of chicken and turkey in New Zealand. Tegel's products include fresh, frozen and cooked whole chickens, chicken portions, and other value added products.

Tegel has entered into an agreement with Manu Fund Limited (Manu Fund) pursuant to which Tegel will sell, and Manu Fund will purchase, nine freehold properties owned by Tegel; and Tegel will lease back the nine properties pursuant to long-term leases.

The sale and lease back of the properties will enable Tegel to free up capital to invest and fund other capital investment projects while still providing security of tenure for its breeding, hatching, rearing, growing, milling and processing operations".

Details of this sale and lease back arrangement were reported by Greg Innes in the Star Sunday times on 6 June 2010:

"Tegel Foods has moved a step closer to a sale or sharemarket listing as it prepares to offload $133 million of property assets. Tegel owns properties in Canterbury, Taranaki and Auckland, and the most valuable of these is believed to be its massive hatchery and processing plant at Drury in rural south Auckland.

It has now struck a deal to sell the Auckland plant for $133.2m under a sale and leaseback arrangement. The sale has been cleared by the Overseas Investment Office but is believed to have not yet been settled.

Tegel, this country's best-known supplier of fresh and frozen chicken products, is owned by a consortium of investors put together by private equity firm Pacific Equity Partners (PEP) and ANZ Capital, the private equity arm of ANZ Bank.

PEP purchased Tegel from Heinz in 2005 for between $250m and $300m, as part of a massive spend-up in this country which included acquisitions such as Whitcoulls, Griffins and beer and spirits maker Flavoured Beverages (formerly Independent Liquor).

Private Equity firms are not usually keen on being long-term owners of businesses and will generally consider flicking their assets after three years of ownership, provided they can do so at a good profit.

Although Tegel is profitable, making a net profit of $29.5m from revenue of $464m in the year to April 2009, like many private equity-owned businesses it carries a mountain of debt. Its accounts to April last year show that it was holding $321.6m in interest-bearing liabilities and made interest payments totalling $45.3m during the previous year.

The size of the company's debt relative to its assets meant it had negative equity of $69.1m. Its biggest assets are property, plant and equipment, which were valued at $178.2m in its 2009 accounts. The effect of a sale and leaseback arrangement would be to free up capital, but it could also add to operating costs because the company would have to pay rent to the property's new owners.

In its application to the Overseas Investment Office, Tegel said the sale would "free up capital to invest and fund other capital investment projects". However, it could also be used to reduce debt and shore up the company's balance sheet ahead of a possible sharemarket float, or be used to provide a capital return to the company's existing shareholders, which would probably be tax free.

The Auckland plant is being purchased by Manu Fund, a subsidiary of Frontier Group Holdings which is owned by Christchurch businessmen Tim Fitzgerald and Philip Nevell. Fitzgerald's background includes stints as treasurer of HSBC's New Zealand operation and as general manager of Enterprise Ashburton.

Frontier Group describes itself as "an investment bank specialising in niche financial services" and has a mandate with Te Puni Kokiri to assist high growth Maori businesses. The company has also teamed up with merchant bank Bancorp as the largest shareholders in a consortium redeveloping land adjacent to Kaikoura's newly completed wharf. That project is likely to comprise a mixed-use development incorporating retail space and a hotel.

Fitzgerald said he could not comment on the Manu Fund acquisition because of strict confidentiality clauses in the contract with Tegel."

See our March 2006 commentary for details of Pacific Equity partners original purchase of Tegel and subsequent restructure of that investment in February 2008. Prior to 2006, Tegel was owned by Wattie's Investments, a subsidiary of H.J. Heinz Company of the U.S.A. For details of earlier OIO approved transactions involving Tegel, see our commentaries for June 1994, October 1996, April 1997, and November 2000.

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Bunnings to establish another warehouse

Bunnings Limited Australian Public (59%), HSBC Custody Nominees (Australia) Limited, Australia (13.9%), JP Morgan Nominees Australia Limited, Australia (13.4%), National Nominees Limited, Australia (9.8%), Citicorp Nominees Pty Limited, Australia (2.8%), and various overseas persons (1.1%) received approval for the acquisition of a freehold interest in 3.36 hectares of land at 18 Hibiscus Coast Highway, Silverdale, Rodney, North Auckland. The vendor was Rodney District Council Rodney District, New Zealand (100%). Consideration was stated as confidential.

The OIO states: "The Applicant intends to open a 6000 square metre hardware and building improvement store on the Land, operating under the Bunnings Warehouse brand. The store will sell home and garden improvement products and building materials to retail and trade customers. The Investment will benefit New Zealand by creating jobs, introducing capital for investment purposes, and creating consequential benefits. The Applicant has a history of successful investment in New Zealand."

What about the consequential costs? Why does the OIO not comment on the jobs lost when locally owned hardware stores and other businesses lose customers and are forced to close when a Bunnings warehouse opens in the area.

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Other April Decisions

Goodman Nominee (NZ) Limited and Goodman Nominee (NZ) No.2 Limited New Zealand Public (53%), Australian Public (32.7%), and various overseas persons (14.3%) received approval for the acquisition of a leasehold interest in 1.9 hectares of land at 60 Westney Road, Manukau, Auckland. Consideration was stated as confidential. The vendor was Workstore Developments Limited Balcombe-Langridge (Richard, Glenda Eveleen and Andrew) as trustees of the Chiswick Trust, New Zealand (50%), Verissimo (Christopher) as trustee of the Christopher Verissimo Trust, New Zealand (25%), and Scott (Terrence John) as trustee of the Terrence John Scott Trust, New Zealand (25%).

The OIO states: "On 8 November 2007 (A200720068), consent was granted under a purchasing programme under the Overseas Investment Act 1973 for the Applicant to acquire a leasehold interest in 1.2954 hectares of land to enable the Applicant to undertake a commercial property development on the land. The Applicant will sub-lease the land to Supply Chain Solutions (NZ) Limited (SCS) and Pacific Network Global Logistics Limited (Pacnet) to be utilised for warehouse and distribution facilities. The Applicant has advised that the parties have now agreed to increase the land area to be sub-leased to SCS and Pacnet from 1.2954 hectares to 1.9377 hectares."

Kaimai Resources Limited Julian Roe, United Kingdom (except Isle of Man and the Channel Islands) (100%) received approval to acquire a freehold interest in 14 hectares of land at Lund Road, Katikati. Consideration was $2,154,375; the vendor was Philip Enterprises Limited and Lund Road Property Limited Philip Colin Chisnall, New Zealand (50%) and Harold Edwin Griffin, New Zealand (50%). The OIO states: "The sole shareholder of the Applicant is a director and 50% shareholder of Monoluxury Sdn Bhd which is a market leader in Malaysia and Singapore in the production and sale of salad vegetables and herbs under the Genting Garden and Village Garden brands. The Applicant is undertaking the investment to develop a sustainable agricultural property producing salad vegetables and herbs for the export and the New Zealand markets."

RobMiJon Holdings Limited Victoria Agnich, Robert Agnich, Michael Agnich and Jonathan Agnich, United States of America (99%) and Richard Agnich and Victoria Agnich, United States of America (1%) received approval for an overseas investment in sensitive land, being the acquisition of a freehold interest in 182.7 hectares of land at Masterton Castlepoint Road, Masterton. Consideration was $225,000, or only $1231 per hectare! The vendor was Mangapakeha Forestry Co Limited Brian Foster Tomlinson, New Zealand (27.5%), James Alan Sadler, New Zealand (27.5%), Robson Blyth King, New Zealand (22.5%), Kevin Thomas Lochore, New Zealand (17.5%), and Shirley King, New Zealand (5%). Robmijon intends to plant a pine forest on the land. I wonder if Mangapakeha has any more land going that cheap. I'll put my hand up for a few hectares at that price!

Kui Zheng and Huachi Gao China, People's Republic of (100%) received approval to acquire a freehold interest in 3.6 hectares of land at 41 Gails Drive, Okura, Auckland. Consideration was $3,100,000; the vendors were Christopher Guy Lindsay and Clare Lindsay and Stephen Thomas Woodfield New Zealand (100%).

The OIO states: "The Applicants are Chinese citizens who have applied for New Zealand Long Term Business Visas. The Applicants are engaged in the manufacturing and wholesaling of landscape sculptures in China, Singapore and the United States of America. The Applicants intend to migrate to New Zealand and reside indefinitely in New Zealand. They propose to establish a wholesaling and retail branch for their business in New Zealand, which will stock and sell products manufactured by their overseas companies. The Applicants intend that the land, which contains a residential dwelling, will be their primary residence in New Zealand."

Great, more cheap imports coming into New Zealand, threatening kiwi manufacturing jobs.

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