Shanghai Pengxin wants government’s Lochinver decision reversed

The company is seeking a judicial review of two government ministers’ decision to decline its application to buy the 13,837ha Lochinver Station for $88 million, despite the Overseas Investment Office (OIO) approving the deal.

The ministers did not believe there was enough advantage to New Zealand to pass the “substantial benefit” test to approve Pure 100 Farm’s purchase of the Stevenson Group-owned property. Pure 100 Farm says the wrong test was applied.

Milk New Zealand (another Shanghai Pengxin subsidiary) director Terry Lee says the company wants to get clarity around the “counterfactual” test the OIO uses when considering the sale of non-urban land of greater than five hectares to foreign buyers.

“This, we believe will do a great deal to restore confidence and certainty amongst foreign buyers and sellers.”

Twenty one factors are laid out in the Overseas Investment Act and regulations and the counterfactual considers whether foreign investors offer more than a New Zealand buyer would.

The benefits are assessed relative to what would occur if a property was not sold – the counterfactual.

Mr Lee says judgment has to be made on foreign investors’ applications against whether the status quo applies – ownership remains with the existing owners – or alternately the property is sold to a well-funded and competent New Zealander.

The OIO has to consider this option as a result of a ruling in a court challenge to Shanghai Pengxin’s purchase of the Crafar Farms.

“The counterfactual and the assumptions of what an alternative New Zealand buyer would do, have a material impact on the assessment of benefit. Our Lochinver application is a case in point.”

Mr Lee says Pure 100 Farm was going to invest $20 million over and above the purchase price, create six additional jobs – an increase of 30% – and improve environmental, health and safety and community benefits. This was not contested by the OIO.

However, when compared to a hypothetical New Zealand buyer, who was assumed to be willing and able to do the same investment, ministers Paula Bennett and Louise Upston says the benefit would be only $3 million in additional capital investment, one fixed term part-time job and some new short-term contracting positions.

“We do not believe the correct counterfactual test was adopted when assessing our application,” Mr Lee says.

“On more than one occasion, Stevenson Group made it clear to the OIO that it required a certain price for the farm to justify its sale and allow reinvestment into the company’s other New Zealand businesses, with consequential benefits in job creation and productivity.”

He says Shanghai Pengxin’s commitment to keep existing farm employees, create more jobs and carry out farm improvements were important to Stevenson Group.

“The company also told the OIO it would not undertake the capital investment proposed by Pure 100 Farm. In other words, the counterfactual should have been the status quo, which would have significantly increased the net benefit of our application.”

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