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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - January 2014 Decisions

Elders Restructures Ownership Of Its New Zealand Saleyards

In two separate decisions Elders Limited Australian Public (70.5%), Citicorp Nominees Pty Limited, Australia (12.3%), Ruralco Holdings Limited, Australia (11.9%), Australian Food & Agriculture Company Limited, Australia (3%) and various overseas persons (2%) received approval for the acquisition of:

• rights or interests in 50% of the issued share capital of Elders Rural Holdings Limited; and
• rights or interests in 70% of the shares of Elderstock Limited; and
• rights or interests in 70% of the shares of Elderstock (SI) Limited; and
• an option for the acquisition of rights or interests in 100% of the shares (as defined in the share option agreement dated 21 December 2007) of Sredle Rural Services Limited (formerly Elders Rural Services Limited); and
• rights or interests in 100% of the Mandatory Convertible Capital Notes issued by Sredle Rural Services Limited (formerly Elders Rural Services Limited) under an application and agreement dated 8 January 2008, which convert to ordinary shares in certain circumstances.

Which collectively own or control:

• a freehold interest in 11.8 hectares of land at Wellsford Saleyards, Centennial Park Road, Wellsford; and
• a freehold interest in 3.3 hectares of land at Hunterville Saleyards, Gordon Terrace, Hunterville; and
• a freehold interest in 4.7 hectares of land at Te Kuiti Saleyards, Cotter Street, Te Kuiti; and
• a freehold interest in 7.8 hectares of land at Masterton Saleyards, Norfolk Road, Masterton; and
• a freehold interest in 9.5 hectares of land at Tuakau Saleyards, Tuakau Saleyards Road, Tuakau; and
• a freehold interest in 7.3 hectares of land at Kaikohe Saleyards, Mangakahia Road, Kaikohe; and
• a freehold interest in 5.1 hectares of land at Whangarei Saleyards, Saleyards Road, Whangarei; and
• a freehold interest in 1.8 hectares of land at Dargaville Saleyards, River Road, Dargaville.

The vendor was Sredle New Zealand Limited (formerly Elders New Zealand Limited) New Zealand (100%); consideration was confidential. The OIO states: "In 2005/2006, a joint venture transaction resulted in a wholly owned subsidiary, Elders Global Wool Holdings Pty Limited, acquiring 50% of the shares in Elders Rural Holdings Limited and 70% of the shares in Elderstock Limited and Elderstock (SI) Limited. In 2007 Sredle New Zealand Limited granted Elders Rural Services Limited an option to acquire all the shares in Sredle Rural Services Limited. In 2008 Sredle Rural Services Limited issued 12,007,277 Mandatory Convertible Capital Notes to Elders Rural Services Limited. The rationale for the acquisition of the securities was to expand Elders' network from Australia to New Zealand". This transaction appears to be a continuation of one approved the previous month, see our December 2013 commentary.

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Crafar Farms' Chinese Owners Now Take Control Of Synlait Farms

In a series of OIO approvals, Chinese interests have taken control of a number of large dairy farms in Canterbury. Firstly, SFL Holdings Limited Zhaobai Jiang, China, People's Republic of (73.2%), Juliet Ann Maclean, New Zealand (16.1%), John William Penno, New Zealand (10%) and Lei Jiang, China, People's Republic of (0.7%) received approval for the acquisition of rights or interests in 100% of the shares in Synlait Farms Limited. Synlait Farms Limited owns or controls:

• B24 Dairies and Treevale Farm: 438.2 ha freehold;
• Beacon Dairies: 379.4 ha freehold;
• Colosseum: 275.4 ha freehold;
• Delaborin Dairies: 375 ha freehold;
• Dunsandel One and Dunsandel Two: 576.9 ha freehold and 36 ha leasehold;
• Lighthouse Dairies: 230.6 ha freehold;
• Morton Marsh Dairies: 308.1 ha freehold;
• Riverlands Dairies: 640.5 ha freehold;
• Robindale Dairies: 586.5 ha freehold and 51.9141 ha leasehold;
• Tapatoru Farm: 318.3 ha freehold; and
• Waitai Farm: 343.1 ha freehold.

As well as the above being sensitive land, approval was also received for an overseas investment in significant business assets, as the value of the assets of Synlait Farms Limited and its 25% or more subsidiaries being more than $100m. The vendors were existing shareholders in Synlait Farms Limited New Zealand Public (47.4%), Juliet Ann Maclean, New Zealand (17.4%), Ben Dingle, New Zealand (17.4%), John William Penno, New Zealand (15.2%) and Therese Roche, Ireland (2.5%). Consideration was $85,686,029 (subject to adjustment as a result of the takeover offer being extended).

The OIO states: "The Applicant is seeking consent to acquire both sensitive land and significant business assets under the Act. The Applicant has made a takeover offer under the Takeovers Code for all of the shares in Synlait Farms Limited. The largest shareholders of Synlait Farms Limited are its three founders: Juliet Maclean (17.4%), Ben Dingle (17.48%) and John Penno (15.2%). Synlait Farms Limited owns 13 dairy farms, comprising approximately 4,559 ha in total (4,471 ha freehold, 88 ha leasehold). The dairy farms are all located in Canterbury, near Dunsandel, Hororata and south of Ashburton. The Applicant will finance the acquisition by way of cash contributions from the Applicant's shareholders".

The Chinese shareholder listed as owning 74% of SFL Holdings is Shanghai Pengxin, which also owns the 8,000ha former Crafar Farms in the North Island which it bought in controversial circumstances in 2012. See our September 2010 commentary for details of the purchase of a controlling stake in the milk processing arm of Synlait by another Chinese company, Bright Dairy and Food Co. Ltd, and our April 2012 commentary for details of Shanghai Pengxin's purchase of the Crafar Farms.

In a second decision New Zealand Standard Farm Limited Zhaobai Jiang, China, People's Republic of (99%) and Lei Jiang, China, People's Republic of (1%) received approval to become the sole shareholder of SFL Holdings Limited, by:

(a) New Zealand Standard Farm Limited acquiring the B and C Shares of SFL Holdings Limited (comprising 26.0855% of the shares of SFL Holdings Limited); and/or

(b) SFL Holdings Limited acquiring its own B and C shares under section 58 of the Companies Act 1993. The land and assets involved is the same as above. Consideration was not stated; the vendors were Juliet Maclean and John Penno Juliet Ann Maclean, New Zealand (61.7%) John William Penno, New Zealand (38.3%).

The OIO states: "The Applicant is seeking consent to acquire both sensitive land and significant business assets under the Act. SFL Holdings Limited has made a takeover offer under the Takeovers Code for all of the shares in Synlait Farms Limited. Synlait Farms Limited owns 13 dairy farms, comprising approximately 4,559 ha in total (4,471 ha freehold, 88 ha leasehold). This consent is sought to provide a mechanism by which Mr Penno and Ms Maclean can dispose of their shareholding in SFL Holdings Limited, should they wish to do so. The Overseas Investment Office understands that Ms Maclean and Mr Penno invested in SFL Holdings Limited at the same issue price as the Applicant, with no minority discount issue price applying to their shares, and sought the option to exit the investment, particularly if the relationship between the joint venture partners deteriorates". So it appears that while Penno and Maclean are happy to sell their farms to the Chinese, they are not so confident in remaining business partners with them?

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But We Need To "Regularise" Some Of This Land?

It appears that Penno and Maclean did not actually own all the land their farms occupy. In a third OIO decision, SFL Holdings Limited Zhaobai Jiang, China, People's Republic of (73.2%), Juliet Ann Maclean, New Zealand (16.1%), John William Penno, New Zealand (10%) and Lei Jiang, China, People's Republic of (0.7%) received approval to acquire a freehold, leasehold or other interest in further sensitive land being:

• a deemed Stewardship Area under section 62 of the Conservation Act 1987;
• part of the bed of the Rakaia River, being Crown land under the Land Act 1948; and
• a paper road vested in the Selwyn District Council along with other paper roads;

The vendor was the New Zealand Public; consideration not stated.

The OIO states: "The Applicant is seeking consent to acquire sensitive land under the Act. The Applicant has made a takeover offer under the Takeovers Code for all of the shares in Synlait Farms Limited. Synlait Farms Limited owns 13 dairy farms, comprising approximately 4,559 ha in total (4,471 ha freehold, 88 ha leasehold)... it was discovered that Synlait Farms Limited was informally occupying certain areas of Crown and territorial authority owned land. The Applicant has therefore sought consent to 'regularise' the occupation of these areas". So the OIO appears to have the power to "regularise" the occupation of publicly owned land including a river bed? Let's pray this doesn't become a regular occurrence!

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New Zealand Guardian Trust Back In NZ Hands, Just

Complectus Limited Andrew Howard Barnes, Australia (67%) and Milford Active Growth Wholesale Fund, New Zealand (33%) received approval for acquisition of rights or interests in up to 100% of the shares of NZGT Holding Company Limited which indirectly owns or controls various interests in sensitive land around New Zealand. The consideration was $68,500,000; the vendor was The Trust Company Limited Australia (100%).

The OIO states: "The Applicant has been granted consent to acquire all the shares in NZGT Holding Company Limited, the 100% owner of New Zealand Guardian Trust Company Limited (NZGT, a statutory trustee company). This application follows an earlier application in which Bath Street Capital Limited (the parent company and 67% shareholder of the Applicant) was granted consent to acquire 100% of Perpetual Trust Limited (PTL, also a statutory trustee company). Following these transactions NZGT and PTL will be in a position to offer services to their customers on an integrated basis. Mr Barnes and his family intend to reside indefinitely in New Zealand".

Goodreturns.co.nz reported details of this deal and its background (7/4/14): "NZ Guardian Trust and Perpetual Trust are being bought by a new company Complectus which has Milford Asset Management as a shareholder. The other shareholder is Bath Street Capital which is controlled by Andrew Barnes and previously fully owned Perpetual Trust New Zealand. Milford's stake in Complectus is through its Active Growth Wholesale Fund. Barnes most recently came to prominence in New Zealand after buying Perpetual Trust for $12.3 million from George Kerr's company Pyne Gould. Before that he established Australian Wealth Management, a spin off from Tower Australia.

"This interconnection between players also sees former Tower Chief Executive Rob Flannagan taking on the chairmanship at Complectus. Flannagan was seen as a GPG-appointment at Tower. Many years ago the predecessor to GPG, Brierley Investments, owned NZ Guardian Trust. NZGT itself has been the subject of four owners in as many years. In its most recent ownership changes Suncorp acquired the business then sold it for $A42 million to ASX-listed Trust Company. Last year (2013) there was an intense battle for ownership of The Trust Company which was finally acquired by another ASX-listed business Perpetual Limited (which is not at all related to Perpetual NZ). Now Perpetual Limited has sold NZGT to Complectus for $68.5 million which was settled in cash.

"Flannagan says by coming together both companies will be in a strong position to continue to provide excellent service to clients, while investing in market leading solutions for both corporate and private clients. He says that it would be business as usual for corporate clients of NZ Guardian Trust where the business is the market leader in New Zealand. Barnes says 'we see strong benefits in integrating the two businesses, and we will be injecting new thinking and ideas into our services for our clients'.

"While these business previously were known as trustee companies that name is no longer used under the Financial Markets Conduct Act. Their new name is statutory supervisors. The Financial Markets Authority Head of Strategy, Innovation and Engagement, Sue Brown, recently said she was 'delighted' that the term trustee has been replaced as it was a 'false indicator' of what the companies did. She says they are front line supervisors". See our September to November 2013 commentaries for details of the purchase of the Perpetual Trust.

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Asian Investors Buy Central Auckland Block

Auckland City Holdings Limited Indonesia (50%) and Singapore (50%) received approval for the acquisition of property in New Zealand used in carrying on business in New Zealand for consideration exceeding $100m, that property being a leasehold interest in 205 Queen Street Auckland. Consideration was $48,300,000 (first tranche); the vendor was Kiwi Property Holdings Limited New Zealand Public (79.8%) and Australian Public (20.2%).

The OIO states: "The Applicant proposes to establish a commercial real estate portfolio in New Zealand". 205 Queen Street (formerly National Bank Centre) occupies an entire block at one of Auckland's busiest pedestrian intersections. Completed in 1990 and purchased by the Trust in three tranches between November 1996 and November 2006, it includes twin towers of 17 levels and 22 levels each with podium retail and basement car parking for 131 cars.

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Other January Decisions

Constellation Brands New Zealand Limited Constellation Brands Inc, United States of America (100%) received approval for the acquisition of a freehold interest in 57.6 hectares of land at 252 Merrifields Rd Blind River Marlborough. The vendor was Ecoagman Limited Penelope Jane Grace Brown, Zambia (50%) and Simon Philip Brown, Zambia (50%): consideration was confidential. The OIO states: "The Applicant is acquiring the land for the purposes of expanding its vineyards and winery business". Constellation Brands appears to be related to Constellation International Holdings Limited which owns the Nobilo Wine Group.

Louis Irvine and Ronel Irvine Australia (100%) received approval for the acquisition of a freehold interest in approximately 48.7 hectares of land at Bendemeer, Queenstown Lakes District. The vendor was Bendemeer Farm Limited New Zealand (100%): consideration was $725,000. The OIO states: "The Applicants intend to reside indefinitely in New Zealand and are acquiring the property to reside on".

And, finally for January, Libra Corporation Limited Tom Petter Andreas Wiel Welo, Norway (100%) received approval for the acquisition of a freehold interest in approximately 5.6 hectares of land located at Wyuna Preserve (Lots 23 and 25), Glenorchy, Queenstown. The vendor was Wyuna Joint Venture Cabo Limited, United States of America (60%) and Pisidia Holdings Limited, New Zealand (40%): consideration was confidential. The OIO states: "The Applicant is acquiring the land in order to construct a private residence (on Lot 23) and to enhance and preserve the natural environment on Lot 25".

Wyuna Station Joint Venture acquired Wyuna in 1999. That purchase was primarily a leasehold arrangement and is covered in our commentary of March 2000. The acquisition did not need Overseas Investment Commission consent because the US interest was at that stage just 0.1% below the 25% threshold requiring approval. However the US partner did not apply for approval for a mortgage it held over the property, and therefore in March 2005, at the same time as receiving consent to freehold 2,695 hectares, it received a retrospective approval for the "interest in land" (mortgage) which it held without the required legal approval for those six years. See our March 2005 commentary for details, as well as those for August 2010 and November 2011 for further details.

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