Shanghai Delisi bought 45 percent of Australian beef processor Bindaree Beef for A$140 million ($101 million; €95 million) in October. Then, Australia’s Treasurer Scott Morrison blocked the sale of S Kidman’s cattle property to Chinese investors, citing national security concerns.
As one of the first deals on the back of the China-Australia Free Trade Agreement (FTA), Agri Investor was keen to find out more from King & Wood Mallesons (KWM), Bindaree’s advisors on the deal. We spoke to KWM partner and lead advisor to Bindaree, Shannon Finch.
How long did it take to set up this deal within the new legal framework and was this faster or slower than you would expect?
We expect that the Chinese outbound investment process will be easier to navigate than under the old regime. So far, that has proven to be true. This particular deal had a few different regulatory aspects, and there were some aspects that changed during the course of the negotiations – and that meant negotiations took a little longer.
The journey from agreement on key commercial points to signing also took slightly longer than Australian parties are accustomed to. That is common for investments involving Chinese parties owing to the cultural and linguistic differences. In addition, Shandong Delisi is a Shenzhen-listed company and there is a foreign investment approval condition, so the process and timing to completion will still be guided by regulatory procedures.
As the first deal in this sector set up following the China-Australia Free Trade Agreement, it might not be surprising that it takes advantage of new export/import tariffs bringing meat into China. Can you discuss the key or new aspects in setting up the agreement from a legal perspective?
This deal demonstrates the opportunities available to Australian companies. It shows that there are reputable Chinese investors seeking attractive Australian investments, and that they offer avenues to access to the Chinese market. This deal aims to inject significant capital into a strong local business, and connect the business to an established distribution network in China.
This deal reaffirms a trend we are seeing in China-outbound investments. Chinese investors are being selective in their investments, focusing on securing know-how and future growth. They are not just interested in the resources sector. This is also an example of a deal involving an investor that is not state-owned. It is indicative of a growing confidence among Chinese privately-held companies to expand internationally.
What lessons has this deal taught you in about how private companies in Australia can handle this kind of deal under the new trade agreement, given that investors from other nations could also be eyeing up Australian assets?
Bindaree attracted attention from a number of high quality parties. However, cross-border deals require special skill sets; Chinese investors can present great opportunities, but the complexity of the transaction should not be taken for granted. This transaction involved two businesses that know and understand their own markets particularly well, but they did approach the transaction with different perspectives. Finding the common ground required a lot of cultural as well as legal understanding across jurisdictions.
Although the deal had to adapt to new regulatory developments, the team we assembled across both our Australian and China offices were already well-versed at dealing with changing environments. That is an essential skillset for a China outbound deal. For us it was a great proof of concept. We had a strong internal team on tap, with colleagues in China experienced on aspects of Chinese law that few international law firms could have navigated. We had senior bilingual lawyers at the core of the team in each jurisdiction. It does make a difference.
What will Delisi’s future role in Bindaree Beef be in the company and how was this arrived at?
Shandong Delisi are taking a minority stake with board representation and the commercial outcomes were obviously driven from that perspective. The management and day-to-day operations will remain local. The addition of capital will likely add to the opportunities for expansion and Delisi will be actively involved in assisting with greater market access into China.
The Australian parliament and media have recently been discussing Foreign Investment Review Board (FIRB) approval in terms of China and other Asian investors. Was it easier or faster in this context to arrange and complete a deal that did not involve land acquisitions?
The transaction remains subject to a number of regulatory filings and approvals and FIRB is among them. The Australian parliament represents Australia’s national interest. The China Australia Free Trade Agreement was a terrific achievement, and we are very supportive of that initiative. We hope that the government will look at this transaction as a great example of two companies getting on with business and seeking to take advantage of the benefits both countries negotiated in that deal.
A lot of Chinese companies are bidding for land and other agricultural acquisitions at the moment. Do you think China will be finding new ways to invest in the Australian agriculture and production chain? Is there anything in Australian or Chinese legislation that could still hamper this or put off interested parties?
The significant reduction in tariffs across the sector as a result of the China-Australia FTA means that the Australian food and agribusiness industry has just received a huge boost in relation to the biggest food opportunity in the world.
Joint ventures are well understood by Chinese investors – they are certainly not a new investment mechanism. This deal is an investment in a strong local business in Australia with the aim of further growth and expansion under the same management. We expect that this is the very type of deal that ought to be encouraged. We also expect that a number of businesses in Australia and China who see what Bindaree and Delisi are doing will consider whether this type of arrangement could work for them. We are already seeing a lot of interest from Chinese investors in the Australian agribusiness space.
This deal ticks a lot of boxes for both the Australian and Chinese national interests. There are always some details to navigate, but we don’t see the legislative environment discouraging this type of deal. Quite the contrary. We have been asked in the context of other agribusiness targets how a similar structure may work. But the importance of the right advisory team cannot be underestimated – you need depth on the bench in both Australia and China.