Pengxin to go to court over NZ block on Lochinver deal

Shanghai Pengxin, the Chinese conglomerate attempting to build a NZ$1 billion ($680 million; €600 million) farming empire in New Zealand, is seeking a judicial review of the government’s decision to block its purchase of the country’s largest dairy farm.

The Chinese firm’s subsidiary Milk New Zealand, which already controls 29 dairy farms in the country, is questioning the measures used by the regulator to assess its agreed takeover with the Stevenson Group for the 14,000-hectare Lochinver farm near Taupo on the North Island, valued at NZ$70 million.

It thinks the proposal should have been assessed properly against a hypothetical bid from a New Zealand firm, as opposed to no deal at all. Regulations overseen by New Zealand’s Overseas Investment Office set out 21 factors to be considered in takeovers by foreign firms in what is known as “the counterfactual”.

“We do not believe that the correct counterfactual was adopted when assessing our application. On more than one occasion, the vendor made it clear to the OIO that it required a certain price for the farm to justify its sale and to allow reinvestment into the vendor’s other New Zealand businesses, with consequential benefits in job creation and productivity,” Terry Lee, director of Milk New Zealand, said in a statement.

Pengxin’s commitment to existing farm employees, creating new jobs and investing in farm improvement were also important to Stevenson, which wanted to raise money through the farm sale for its quarrying operations, Lee said. Stevenson had told the OIO it would not make the same capital investment proposed by the Pengxin subsidiary if the deal did not go ahead, he added.

The New Zealand government blocked Pengxin’s agreed takeover of Lochinver in September on the grounds of the sheer size of the farm and a lack of economic benefit for New Zealand. However, Lee said Milk New Zealand had planned to invest an additional NZ$20 million on top of the purchase price, and would create at least six new jobs – representing a 30 percent increase in current staffing.

Pengxin’s decision to take the New Zealand government’s rejection through the courts adds another twist to the already long-running takeover saga, which threatens to tarnish the country’s reputation for inward investment.

Andy Macleod, chief executive of the Pengxin New Zealand Farm Group, was quoted earlier this year as saying that the Shanghai group wanted to double its assets in the country to NZ$1 billion within five years. However, earlier this week, Dakang New Zealand Farm Group, which is 55 percent owned by Pengxin, said it had dropped its bid to buy 10 farms from the Pinny family for a reported NZ$43 million because of delays at the OIO and uncertainty that the deal would succeed.