NEW ZEALAND: by Bernard MoranNews Weekly
Kiwis wary of China's murky takeover bids
, August 21, 2010
The saga of the Crafar farms has New Zealanders apprehensive about Chinese investment in their vital dairy industry.
Now a growing political "hot potato", the potential takeover of dairy farmland has far-reaching implications, as even Prime Minister John Key has conceded.
The Chinese business interests are secretive and with some of the key players burdened with a track record of debt and failed ventures, it's not surprising that there is increasing alarm.
The Crafar family owned 16 dairy farms scattered around New Zealand. They got into trouble when the authorities discovered cows in poor condition on several of their properties. Rather than running the sophisticated high-tech farm management associated with modern NZ dairying, the Crafars appeared to be straight out of Dad and Dave.
Family spokesman Allan Crafar admitted that they were strangers to computers and that he ran the administration in his head with the aid of a trusty notebook. He couldn't be on 16 farms at once and it appeared that some managers were letting the family down.
The problems kept on piling up and, in October 2009, the Crafar farms went into receivership owing NZ$200 million to the banks, who then appointed liquidators KordaMentha to sell them off. KordaMentha have a reputation as very tough negotiators and sought to sell the farms to the highest bidder.
They also wanted Allan Crafar and family to vacate their home farm and went to court paying the legal fees of NZ$1 million out of the farms' revenue. An outraged Crafar denounced them as "bastards", applied for legal aid three times without success and ended up defending himself in court. The judge hearing the case on July 26 advised him to get a lawyer, but Crafar insisted he has no money to engage one.
Enter Hong Kong-based Natural Dairy with an offer of NZ$230 million to buy about 8,000 acres of dairy farms as part of a NZ$1.5 billion investment including setting up its own processing plant in a vertically-integrated supply chain.
Quoting an unnamed source in Wellington, business journalist James Weir wrote in The Dominion Post
(July 10) that this is "not the first time a Chinese or Hong Kong company has come sniffing around for dairying land in New Zealand.
"There had been five different times that groups had come in trying to 'white ant' Fonterra [NZ's biggest dairy company] and the industry in the past 15 years.
"Whoever may be behind Natural Dairy is suspected to want to undermine the Fonterra structure, by 'trying to get a cheaper price and take the profit margin in China'. ...
He quoted the Wellington source as saying, "The standard mode is to profit-shift, to avoid making profits in New Zealand and lowering the export price and take the margin in a tax-efficient way in China" - perhaps 10 per cent under the market price.
Weir added that that had "the potential to undermine the value of other New Zealand exports" and was "a recipe of trouble for the dairy export industry".
Natural Dairy has to obtain approval from NZ's Overseas Investment Office. The growing furore has forced the Government to look to Australia where foreign investments can be rejected if the Treasurer considers the matter is "contrary to the national interest".
Unfortunately for Prime Minister John Key, his deputy, Finance Minister Bill English, in 2009 rejected the "national interest" test as a reserve power.
Natural Dairy plans to send huge quantities of ultra-high-temperature (UHT)-treated milk back to Hong Kong and China where it can earn a premium price for its safety and quality.
However, the reputation and links of some of the key players, plus the revelations that obscure Cayman Island companies are also involved, have set alarm bells ringing.
For example, May Wang, the businesswoman with NZ citizenship fronting Natural Dairy, is alleged to owe Latitude Asia more than NZ$2.5 million. Westpac bank is owned more than NZ$600,000 by her and has lodged an application with the High Court to bankrupt her.
Her commercial credibility is not looking good.
A detailed investigation, entitled "Crafar farms - behind the façade", appeared in the business section of the New Zealand Herald
on July 30.
Written by Karyn Scherer, it attempted to uncover the convoluted links of those involved with Natural Dairy. Some of the key players were Jack Chen, Anna Zhang and Nancy Liu, members of an Auckland group known as the Chinese Business Roundtable Council (CBRC).
Labour Party leader Phil Goff is a patron of the Council. Another member, Bill Liu, is wanted in China for an alleged fraud involving several million dollars. During Labour's three terms in Government, several Labour MPs helped him obtain NZ citizenship.
Former National Party Prime Minister Jenny Shipley has links to Jack Chen and also serves on the board of a division of the China Construction Bank (China's third biggest bank), which has allegedly agreed to assist in funding the bid for Crafar farms. Jenny Shipley provides "access" to the National Government.
One of China's biggest billionaires, Chen Fashu, has spent NZ$17 million buying shares in Natural Dairy through the Hong Kong Stock Exchange. His company is China's leading gold producer and owns mines in seven other countries.
Amid all this murky wheeling and dealing there are the good guys at Landcorp, New Zealand's state-owned enterprise which owns and manages more than 100 farms around the country.
Landcorp put in a bid for 16 Crafar farms which was almost derisively rejected by the receivers KordaMentha, who are acting for the banks.
The speedy rejection puzzled and dismayed the public, but it is now emerging that perhaps the receivers may have to talk to Landcorp again.
The Overseas Investment Office has to approve the Natural Dairy takeover, and, as a result of rising public and political concern, they are under pressure to carry out strict due diligence.
A timely warning about the risks involved has just been issued by an American academic who has emigrated to New Zealand to join Massey University's business school.
In a report in the New Zealand Herald
(August 2, 2010), Professor Usha Haley, who studied the growth of Chinese businesses in the steel, glass, paper and forest industries, identified large subsidies from the Chinese Government as the driving force in their huge export growth - a form of state capitalism.
Professor Haley said that New Zealand needed to consider how important its industries were to the economy and national identity.
"New Zealand needs to wall off its critical technologies and understand the risks before proceeding," she said.Bernard Moran is a New Zealand journalist with an interest in defence matters.
James Weir, "Far more to worry about than skin hue", Dominion Post
(Wellington, New Zealand), July 10, 2010.
Karyn Scherer, "Crafar farms - behind the facade", New Zealand Herald
(Auckland), July 30, 2010.
Tamsyn Parker, "Warning to NZ: Keep technology secrets safe from China", New Zealand Herald
(Auckland), August 2, 2010.