Shanghai Pengxin mounts legal challenge to government's rejection of Lochinver purchase
By Jonathan Underhill
Oct. 15 (BusinessDesk) - Shanghai Pengxin says it will seek a judicial review of the government's decision to decline its $88 million purchase of Lochinver Station amid signs the investment group's strategy in New Zealand is being thwarted by a new hardline approach to foreign land purchases.
Terry Lee, a director of Pengxin subsidiary Milk New Zealand, said the Chinese company's Pure 100 Farm unit which was to have made the purchase, was seeking "clarity on the ‘counterfactual’ to be used when assessing sales of non-urban land of greater than 5 hectares to overseas investors."
Associate Finance Minister Paula Bennett and Land Information Minister Louise Upston last month went against advice from the Overseas Investment Office to approve the sale, saying they weren't convinced it provided enough benefit to New Zealand. The ministers had sat on the OIO recommendation for some months before declining the deal. Another Shanghai Pengxin business, the 55 percent-owned Dakang New Zealand Farm Group, this week quit efforts to buy 10 farms in Northland, citing five months of silence from the Overseas Investment Office.
The Lochinver decision drew criticism from owner Stevenson Group, which said the government was trampling on its right to get the best possible price for the 13,843 hectare farm near Lake Taupo.
"If the assumption is that the property would have been sold anyway, then judgement also has to be applied as to what the hypothetical purchaser would do with the property," Lee said of the Lochinver decision.
The development plan for Lochinver was to invest a further $20 million in the property, on top of the purchase price, and create at least six new jobs, Lee said. But when the deal was compared to a hypothetical New Zealand purchaser, the net additional benefit was calculated at just $3 million and only one new part-time job.
“We do not believe that the correct counterfactual was adopted when assessing our application," Lee said. "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."
Pengxin’s commitment to existing farm employees and farm improvements were also important to Stevenson Group, Lee said. "The vendor also confirmed to the OIO that it would not undertake the capital investment proposed by Pure 100. In other words, the counterfactual should have been the status quo, which would have significantly increased the net benefit associated with our application."
“The judicial review will seek to obtain clarity for all parties on what constitutes a viable counterfactual and this will, we believe, do a great deal to restore confidence and certainty amongst investors and sellers,” Lee said.