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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - November 2010 Decisions

Canadians Consolidate Holding In Powerco

A quiet month at the OIO, but some significant approvals nevertheless, with Canadian interests buying up large. Firstly, in an overseas share shuffle, Brookfield Asset Management Inc. on behalf of Brookfield Infrastructure Partners LP and BIP Bermuda Holdings IV Limited Canada (68.3%), United States (26.1%), various overseas persons (5.6%) received approval to acquire the rights or interests in a further 60.1% of the stapled securities* of Prime Infrastructure Group which owns or controls:

• a freehold interest in 50.2 hectares of land at 155 - 157 Kaimarama Rd, Whitianga; and
• a freehold interest in 0.9 hectares of land at 40 Alach St, Gate Pa; and
• a freehold interest in 0.2 hectares of land at 11 Main Rd, Tairua; and
• a freehold interest in 13.4 hectares of land at 661 Kopu-Hikuai Rd, SH 25a, Kopu.

(* Stapled securities are redeemable shares stapled to convertible debt notes. Ed.)

Approval included an overseas investment in significant business assets, being the Applicant's acquisition of rights or interests in a further 60.1% of the stapled securities of Prime Infrastructure Group, the value of the assets of Prime Infrastructure Group and its 25% or more subsidiaries being greater than $100m.The asset value was stated as $1,875,000,000 (total New Zealand assets as at 30 June 2010). The vendors were existing Shareholders of Prime Infrastructure Group other than BIP Bermuda Holdings IV Limited United States (49.9%), various overseas persons (26.3%), Australian Public (15.4%), Hong Kong Public (8.4%).

The OIO states: "The Applicants are part of the Brookfield Group (Brookfield), an investor in long life, high quality infrastructure assets. Brookfield acquired 39.9% of the stapled securities on issue by the Prime Infrastructure Group (Prime) in November 2009. Brookfield now intends to increase its holding to up to 100% of the Prime stapled securities. The acquisition will be pursuant to a scheme of arrangement or, in the event that the scheme does not proceed, a takeover offer. Prime's key New Zealand asset is Powerco Limited (Powerco), in which it presently has a 42% stake. Powerco operates electricity and gas distribution businesses throughout the North Island".

See our November 2009 for details of Brookfield's initial purchase of 39.9% of Prime from Babcock and Brown, and our October 2004 commentary for details of Babcock and Browns original purchase of Powerco. In February 2009, Babcock sold a 58% share in Powerco to Queensland Investment Corporation (QIC) Private Capital Pty Limited, (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.

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Canadians Buy Aussie-Owned AWB

In another significant overseas share shuffle, Agrium South Pacific Pty Limited Canada Public (73.3%), McLean Budden Limited Canada (3.0%), Wellington Management Company, LLP USA (3.0%), CIBC World Markets Inc. Canada (2.9%), Pyramis Global Advisors LLC USA (2.9%), Norges Bank Investment Management Norway (2.8%), Greystone Managed Investments Inc Canada (2.5%), Harris Investment Management Inc USA (2.5%), RBC Dominion Securities, Inc Canada (2.4%), Letko, Brosseau & Associates Inc Canada (2.4%), Scheer, Rowlett & Associates Investment Management Canada (2.3%) received approval to acquire the rights or interests in 100% of the ordinary shares of AWB Limited which owns or controls a freehold interest in 0.7 hectares of land at 25 Stafford Street, Shannon. Approval was also received for an overseas investment in significant business assets, being the applicant's acquisition of rights or interests in 100% of the ordinary shares of AWB Limited, the value of the assets of AWB Limited and its 25% or more subsidiaries being greater than $100m. The vendors were Existing shareholders of AWB Limited Australian Public (76.3%), Credit Suisse Group Switzerland (5.9%), Dimensional Fund Advisors Australia (5.0%), Centaurus Capital Australia (3.4%), UBS Securities Switzerland (2.6%), UBS, Switzerland (2.5%), Alliance Bernstein - Value United States of America (2.2%), Paradice Investment Management Australia (2.1%). The asset value was stated at $141,710,000.

The OIO states: "The Applicant is part of the Agrium Group, a global producer and supplier of agricultural products and services. The Applicant will acquire all of the issued capital of AWB Limited (AWB), an Australian company, which is one of Australia's largest distributors of fertiliser and agricultural merchandise. AWB holds a 50% interest in RD1 Limited, a New Zealand retailer and agent of agricultural supplies and other services. Agrium currently has no material operations in New Zealand. Agrium's current intention for AWB's business in New Zealand is to continue to develop the retail business and to conduct a comprehensive assessment of the products and services offered by AWB". While AWB's business in New Zealand appears all above board, its operations out of Australia have been somewhat controversial. See Bill Rosenberg's excellent article "War Profiteers: Corporate Beneficiaries Of The US War On Iraq" in Watchdog 103, August 2003 for details of AWB's involvement.

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Ngai Tahu Sells Rakanui Station To An American Energy Trader

In two separate decisions, Hyde Investments Limited Margaret Elisabeth Hyde, United States of America (100%) received approval to acquire a freehold interest in 438 hectares of land known as "Kahutara Downs" located on SH1, 16km South of Kaikoura, and a freehold interest in 1,345hectares of land known as "Rakanui Station" located at SH1, Kaikoura. The vendor for Kahutara was Heaton Investments Limited David Pritchard and Jacqueline Pritchard, New Zealand (25%) , Brian Fitzgerald Interests, New Zealand (25%), Phillip Roger Burmester, New Zealand (25%), David Smallbone and Evan Moore, New Zealand (25%); consideration was $3,487,500.

The vendor for Rakanui was Ngai Tahu Property Limited Te Runanga o Ngai Tahu, New Zealand (100%); consideration was $7,500,000 or just $5576 per hectare. The OIO states with respect to both approvals: "The Applicant intends to develop the combined "Kahutara Downs" and 'Rakanui Station' properties in accordance with professional business and ecological plans by improving the farming operations, planting a sustainable forest and implementing an ecological restoration programme to protect sensitive ecological values".

While the applicants' intentions sound admirable, I am not so sure. Margaret Hyde, a children's author is married to Chris Gough, a US energy trader. According to the Marlborough Express (14/1/11), Mr Gough said he wanted to move away from farming and "participate in your carbon scheme". In other words, is this a case of US entrepreneurs seeking to exploit our Emissions Trading Scheme, buying land they will hardly visit, under the guise of being environmental? Another question that needs to be asked is why Ngai Tahu feels it is necessary to sell this chunk of Aotearoa for half a million dollars less than what they paid for it back in 2005?

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Other November Decisions

Kaingaroa Timberlands President and Fellows of Harvard College, United States of America (60%), Guardians of New Zealand Superannuation (40%) received approval to acquire a a leasehold interest in 105.5 hectares of land at Dun Road, Kaingaroa. The vendor was CNI Iwi Holdings Limited New Zealand (100%); consideration was $837,902. The OIO states: "The Applicant currently owns certain assets acquired from the Central North Island Forest Partnership including the Kaingaroa Forest and the Kaingaroa Processing Plant (KPP) which is situated on land the subject of the Kaingaroa Headquarters Crown Forestry Licence (KH CFL). The Applicant is the licensee under the KH CFL. The Applicant intends to lease the land on which the KPP is located. This will ensure it is able to continue using the KPP to process stem length radiata pine from the Kaingaroa Forest into a wide range of high value forest products". See our October 2003 commentary for details of Harvard's original purchase of Kaingaroa Forest as well as our September 2010 commentary of its recent purchase of Big Sky dairy Farm in Central Otago.

The final approval for November was Pernod Ricard New Zealand Limited Pernod Ricard SA, France (100%) receiving approval for the acquisition of:

• a freehold interest in 49.3 hectares of land at Riverpoint Vineyard, 187-189 Riverpoint Rd, Matawhero; and
• a freehold interest in 88.6 hectares of land at Saints Estate, 188-236 Tiniroto Rd, Pipiwhakao Rd, Butler Lane, Patutahi; and
• a freehold interest in 60.7 hectares of land at Phoenix Estate, 203/227 Te Mata Mangateretere Rd, Havelock North; and
• a freehold interest in 31.5 hectares of land at McDonald Estate, Moteo Pa Rd, Moteo, Puketapu; and
• a freehold interest in 93.5 hectares of land at Twin Rivers Estate, 38 Sisson Rd, Pakowhai.

The vendor was Capital Nominees Limited as nominee for the Public Trust as trustee for Capital Commercial Property Trust New Zealand (100%); consideration was $1,896,614. The OIO states: "The Applicant is a major wine producer in New Zealand with vineyard operations and ownership in the Marlborough, Hawkes Bay, Gisborne and Waipara regions. The Applicant has undertaken a review of its current wine brands and vineyards and has determined that the land the subject of this application is no longer strategic to its business. The Applicant who currently leases the land intends to purchase the freehold with a view to divesting it to third parties".

I realise the wine industry is in the doldrums, but the price paid ($1.9 million) by Pernod Ricard seems extremely cheap for over 320 hectares; that's under $6,000 per hectare! This is especially so when you consider that the following month, Pernod sells three of these properties (Riverpoint, Saints and Twin Rivers) as part of a larger sale to NZ Breweries for an average price of $168,511 per hectare! As I mention next month, either the OIO has got its numbers wrong, or Capital Nominees Limited as nominee for the Public Trust as trustee for Capital Commercial Property Trust (the seller to Pernod last month) has been well and truly shafted? For details of other land purchases here by this French company, see our commentaries for April 2004, August and October 2006, January and August 2008.

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