Sanford moves to restrict foreign shareholders to protect quotas

Sanford has asked shareholders to vote for a constitutional change so it can restrict the level of foreign ownership to 22.5% to avoid jeopardising its wild catch fishing quota.

The Overseas Investment and Fisheries Acts restrict foreign investment in fishing quota which is the company's major asset, worth an estimated $401 million.

Shareholders were told if the rising foreign ownership of Sanford went above the 25% limit under the acts, it would be deemed an overseas person and could seriously jeopardise the company's continued ownership of quota if it breached the threshold and hadn't applied for consent with the Overseas Investment Office.

Sanford is the country's biggest fishing company and holds 23% of New Zealand's fishing quota.

It says foreign ownership in the company has increased from about 9% a year ago to 17.5% and has risen 1.3% just since the notice of meeting went out on November 29.

The fishing company counts the Goodfellow family as a cornerstone investor. The family owns just over a third of the company through the family investment vehicle, Amalgamated Dairies, the biggest shareholder, and the Avalon Investment Trust which sold $25 million of shares to Japan's biggest seafood company Maruha Nichiro Group earlier this year.

Sanford reported a 152% increase in net profit this financial year to $34.7 million under a strategy of adding value and developing brands with provenance and has lifted the amount it makes from its wild catch quota and seafood harvest to 51c per kilogram from 35c last year. The target is to hit $1 per kg.

Chairman Paul Norling says overseas investors are starting to take notice of its progress.

"It's apparent the improving performance of the company and the strategy it is now following is of increasing interest to international entities either allied to the seafood industry or investment vehicles that are looking more actively for strategic positions in key food areas such as seafood," he told shareholders.

"It is, therefore, imperative that we address this matter now and take the steps that need to be taken to protect investment in Sanford from this catastrophic type of risk."

The company's constitution is outdated, he said and offers only limited protection and powers for the board to prevent or remedy a potential breach. The new ownership restrictions allow the board to suspend the voting rights of anyone that causes a breach of the threshold, in a first in last out basis and requires them to sell some or all of their shares.

Other listed New Zealand companies have similar ownership restrictions including Air New Zealand which could lose overseas landing rights if its level of overseas ownership is too high.

The NZX has already given approval for, and a waiver from certain listing rules, to allow Sanford to make the constitutional changes.

The board has set the threshold at 22.5%, giving it a 2.5% headroom of the statutory limit, but has retained the right to change the percentage including going higher if, for example, it was granted a comprehensive OIO exemption which meant more securities could be overseas owned.

During the year Sanford carried out a detailed risk analysis including the challenges posed by climate change, which is its most significant risk because of the potential impact on the marine environment.

Mr Norling says the company is confident of achieving profit growth this financial year, though at lower levels than in 2016. But he says the board wants to lower borrowings to more prudent levels of 1.7 times ebitda, compared to the current two times.

Mr Norling says "cash is king" and debt had risen slightly through the purchase this year of a new vessel, San Granit, and the board wants it back to a more conservative level given the industry's unpredictability.

The company's share price rose 0.3% to $6.70 and has risen 22% this year.

(BusinessDesk)