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Foreign investment in Aotearoa/New Zealand

Overseas Investment Office - February 2020 Decisions

Two More Drylandcarbon Forests

Drylandcarbon One Limited Partnership (NZ Public 59.7%; Australian Public 14.4%; US Public (14.1%; various 11.8%) has consent to acquire 1,319.2665 ha. at 42 Wiffens Road, Kekerengu, Kaikoura, from Matiawa Ltd (NZ 100%). Price withheld under s.9(2)(b)(ii) of the Official Information Act. The OIO states that Drylandcarbon has applied under the special test for forestry activities in s.16A(4) of the Act.

The land is known as "Matiawa" and 872 hectares are currently a sheep and beef breeding farm. Drylandcarbon proposes to plant approximately 850 ha. as a commercial rotation forest. The remainder is made up of 170 ha. of native bush and 299 ha. of riparian, reverting scrub and bush, a small exotic plantation and buildings and yards

If assessed as safe and habitable, the dwellings will only be used for forestry worker accommodation, in line with the residential land ownership requirements of the Act. Drylandcarbon will continue existing arrangements, including public access for the School of Geography, Environment & Earth Sciences at Victoria University. It intends to harvest the existing crop of trees and replant. The OIO was satisfied the investment met the special forestry test.

Drylandcarbon One Limited Partnership (NZ Public 59.7%; Australian Public 14.4%; US Public 14.1%; various 11.8%) has consent to acquire 302.59 ha. at Whakatomotomo Road, Pirinoa, Wairarapa, from Guy Stuart Didsbury, Andrea Dorothy Didsbury and Timothy David White as Trustees for the Guy Didsbury Family Trust (NZ 100%). Price withheld under s.9(2)(b)(ii) of the Official Information Act.

The OIO states that Drylandcarbon has applied under the special test for forestry activities in s.16A(4) of the Act. The land is currently used as a grazing property and finishing operation, with 223 hectares currently grazed by sheep and cattle. The remainder is 26 ha. of existing radiata pine and 54 ha. of reverting scrub. Drylandcarbon proposes to plant approximately 214 ha. as a commercial rotation forest.

A further nine hectares will be planted dependent on obtaining resource consent, or if not obtained this area will be left to revert to bush. Drylandcarbon intends to harvest the existing trees and replant. Drylandcarbon is carbon farming forestation partnership comprising Z Energy, Contact Energy, Air NZ and Genesis Energy, the latter two being partly State-owned. See November 2019 and January 2020 for previous consents

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Hong Kong/Bermuda Company Buys Ormond Valley Forest, Gisborne

Greenheart Papakorakora Forest NZ Ltd (Hong Kong 100%) has consent to acquire 80.9650 ha. at Ormond Valley Road, Ormond, Gisborne, from First Forestry Ltd (NZ 100%) for $2,900,000. The OIO states that Greenheart has applied under the special test for forestry activities in s.16A(4) of the Act. The land is already a commercial forest known as the "Ormond Valley Forest". The land use is 73.4 ha. of forestry and 7.565 ha. of unproductive land containing setbacks. Greenheart intends to continue operating the land as a commercial forest, and replant following harvest.

As the land is already in forest, the "benefit to NZ" under s.16A(4) is apparently just from replanting after harvest. The NZ companies register shows Greenheart Papakorakora Forest and six other Greenheart companies are owned by Greenheart Group Ltd, with an office address in Hong Kong, but registered in the tax haven of Bermuda. Some directors of Greenheart companies are also directors of Pouto Forest Managers Ltd and Northland Forest Managers Ltd.

See commentary of February 2011 for Greenheart's purchase of Mangakahia Forest. At that time Greenheart was 60% owned by Sino-Forest Corporation, a leading forest operator in mainland China, whose Canadian company declared itself bankrupt while being investigated for fraud and (Wikipedia). See OIO Decisions of May 2015 for the buyup of the Greenheart Group by a company then called Newforest Ltd, Hong Kong.

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US Costco Giant Retail Club Hits NZ

Costco Wholesale NZ Ltd (USA 98.9%; Canada 0.8%; various 0.3%) has consent to acquire 2.7601 ha. at the corner of Maki Street and Gunton Drive, Westgate, in Massey, Auckland. The vendor is Westgate Town Centre (2017) Ltd (NZ 100%) and the price is $23,270,825. The OIO states that Costco Wholesale NZ is ultimately owned by Costco Wholesale Corporation, which operates the Costco global membership retail warehouse business.

Costco Wholesale intends to construct and establish its first retail warehouse in NZ. It also intends to acquire nearby land (not subject to OIO consent) for a fuel sales site. The stated benefits to NZ include new jobs in construction and operation of the warehouse, car park and fuel station; additional investment in development; added market competition through a new retail format; and increased export receipts of NZ products to other Costco stores worldwide.

The Costco Wholesale Corporation is the world's second largest retailer after Walmart (as of 2015), the world's largest retailer of beef, organic foods, rotisserie chicken and wine (2016), and in 2019 was No.14 in Fortune 500 rankings by total revenue (Wikipedia). Wikipedia describes Costco as stocking a wide range of constantly changing products - provided it gets them cheap enough. For example, it refused to stock Coca-Cola for a month until Coca-Cola lowered its price to Costco. Some supply chains, e.g. for chicken, are vertically integrated in Costco ownership.

Wikipedia lists animal rights controversies involving Costco. Its stores also typically sell cheap US-style fast food. Most locations are not unionised, and employee agreements are subject to unilateral change by Costco. After the cost of building its large stores, it keeps overheads at about 10% of revenue and profit margins at 2%. Its annual membership fees from customers account for 80% of its gross margin. So, if Costco increases exports of NZ produce, it may well be by squeezing farmers, as well employees and member-customers.

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Synlait To Buy Dairyworks' Land...

Synlait Milk Ltd (China PR 39%, NZ 35%, Australia 17.4%; US 4.8%, Hong Kong 1%; various 2.7%) has consent to acquire 100% of the shares in Dairyworks Ltd from Margaret Elizabeth Cross, Peter David Cross, and Bruce Robertson Irvine as Trustees of the GPS Trust (NZ 100%) for $112 million (subject to adjustment).

The OIO states that Synlait is a company that produces a variety of dairy products, including fresh milk, milk powders, and nutritional products. Dairyworks Ltd (along with its subsidiaries) has developed a range of packaged dairy products including cheese, butter and milk powder brands (Dairyworks, Alpine and Rolling Meadow) as well as ice cream (Deep South). This acquisition will allow Synlait to continue diversifying its business and serve the retail and food service sectors of the domestic market. Synlait Milk has satisfied the OIO that the individuals who will control the investment have the relevant business experience and acumen, and are of good character, and has demonstrated financial commitment.

This consent is about the change in ownership of land. See next month March 2020 for OIO consent for Synlait to acquire Dairyworks itself as a "significant business interest". Dairyworks, established in South Canterbury in 2001, is one of NZ's larger dairy companies, supplying almost half of NZ's cheese, a quarter of its butter as well as milk powder and the Deep South ice cream, plus exports to Australia.

Dairyworks will continue to operate as a stand-alone business under Synlait. Synlait says its $122 million cost reflects 7.5 times Dairyworks' earnings before interest, tax, depreciation and amortisation over the previous last 12 months (NZ Herald, 25/10/19).

Synlait Milk is currently 39% owned by Bright Dairy, part of Bright Food, the second-largest food manufacturing company in China (2011 revenues), owned by the Shanghai Municipal government. Its second largest shareholder is A2 Milk, with 17.4% (ibid. and Wikipedia). See September 2010 and January 2014 commentaries for the takeover of NZ-listed Canterbury company Synlait Milk by largely Chinese interests. See November 2009 and December 2011 for previous OIO consents related to Sinlait.

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...And Buys Land For Water Rights Next To Its Dunsandel Plant, Canterbury

Synlait Milk Ltd (Chinese Public 39%; NZ Public 35%; Australian Public 17.4%; US Public 4.8%; various other 3.7%) has consent to acquire 581.9698 ha. at 850 Heslerton Road, Dunsandel, and also a paper road of approximately 2.4953 ha. between Heslerton Road and Sheats Road, Dunsandel, Selwyn, from Theland Purata Farm Group Ltd (Zhaobai Jiang, China PR 99%; Lei Jiang, China PR 1%) for $25,700,000 and $125,000 respectively.

The OIO states that Synlait Milk wants to acquire farmland that adjoins its milk processing plant as well as the paper road that adjoins the farmland and the plant. Synlait produces milk powders and nutritional products such as infant formula. It is one of NZ's top five milk processors and employs over 900 staff, of whom over 700 are at the Dunsandel plant. Since its establishment, Synlait Milk has made significant investment in New Zealand. The land was originally owned by a related company to Synlait but sold to Theland Purata Farm Group. An agreement between the two allows water to be drawn from bores on the land and for processing water to be distributed over the land as required.

The agreement includes an option for Synlait Milk to acquire the land, which it has exercised. Owning the land will give Synlait Milk greater control over the water rights and allow it to manage its operations more efficiently. The acquisition of the farmland will also give them opportunities to trial sustainable farming practices and carry out on-farm research. Following acquisition, Synlait intends to construct a rail siding to transport product and reduce truck use by around 16,000 movements per year. The OIO decision includes conditions requiring the construction of the rail siding. Synlait is currently constructing significant additional storage facilities adjacent to the rail siding site.

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Retrospective Consent For Albany Residential Development

Library Lane Development LP (Yuntao Cai, China, NZ 25%; Cho Kin Wong, NZ 20%; Yamin Zhan, China PR 20%; Xikun Zhan, China PR 20%; Hongyuan Chang, China PR 15%) has consent to acquire 1.5198 ha. at 18-36 Library Lane and 568 Albany Highway, Albany Village, Auckland, from Matvin Group Ltd (NZ 100%) for $12,350,000.

The OIO states that Library Lane Development is an NZ limited partnership developing land for residential subdivision. In mid-2013, an agreement was entered into to acquire the land at Library Lane and the land was transferred. Overseas persons later acquired interests in Library Lane Development, making LLLP an overseas person. Due to erroneous legal advice, OIO consent was not obtained.

LLLP sought retrospective consent, and the OIO imposed an administrative penalty for breach of the Act. LLLP's investment has resulted, and is likely to result, in benefits to NZ. LLLP has already developed stage one of the development and sold all of these units. They intend to continue with the remaining two stages, and will divest any interest in the development once complete.

The multi-stage development will result in approximately 300 residential apartments, some commercial units, and associated car parks. The first stage is completed, and earthworks have begun on the second stage. Consent will be required for any overseas persons wanting to own units in the development. And those overseas persons wanting to own units would need to be NZ permanent residents, right?

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