OVERSEAS INVESTMENT OFFICE DECISIONS
The Condensed Edition
- Murray Horton
We forewarned in the previous issue (August 2021) that it could be the last one to include that regular feature of Watchdogs going back continuously for well-nigh 30 years. And, sadly, so it has proved to be. Linda Hill, our most recent Overseas Investment Office (OIO) Decisions' writer, finished her promised five-year stint with the August issue. CAFCA has spent 2021 trying to find a replacement but without success thus far. For the first time ever, we paid an annual sub to join a volunteering network and advertise on its site. An enthusiastic member paid out of his own pocket to do likewise in his part of the country.
Between us, we have garnered several nibbles but, once they become aware of the sheer amount of specialist work involved, we hear no more. At the time of writing there are a couple of possible takers but nothing definite as per yet. It has never been part of my job and, if you read the appeal accompanying this issue, you will see that my paid hours have been cut by a quarter (because of the declining financial health of the CAFCA/ABC Organiser Account, which provides my income) - so, I won't be taking on any more work, I'm afraid.
We direct you to the Overseas Investment Office's Website, where you can find all the Decisions archived here. These are summaries only, not the full files. It is also worth remembering that the OIO records are not a complete picture of foreign "investment" in NZ.
For example, they only have to get involved with the foreign takeover of NZ companies if the purchase price is more than $100 million. And a number of "free trade" agreements (FTAs) set the sum higher than that for purchasers from that country. In the case of the brand-new FTA with the UK, the sum above which OIO consent is required has been set at $200m. For Australia, it's several hundred million dollars more than that.
As a purely token gesture, CAFCA has decided to highlight one Decision (and one only) from each month of Decisions. Linda Hill's writing stint finished with April 2021, so I'll start with May. This marks the first time I've written up so much as a single OIO Decision. It's worth noting that the great bulk of Decisions every month involve forestry, so I'll try to highlight something that doesn't.
Gaming
MTG Gaming AB (Sweden 47.5%; United States 16.6%; Luxembourg 8.2%; United Kingdom 6.8%; Finland 5.5%; Norway 5%; Various 10.4%) got OIO approval to buy Ninja Kiwi Ltd (NZ 100%) for $366,600,000. To quote the OIO: "The Applicant is a digital entertainment company based in Stockholm, Sweden. Both the Applicant and the Vendor are involved in the gaming industry. The Applicant is acquiring up to 100% of the shares in the Vendor's company. The Applicant intends to assist the Vendor scale its business by leveraging its assets and capabilities. The Applicant has satisfied the investor test criterion".
Ninja Kiwi has 70 staff in Auckland and Scotland. Interestingly, NZ media reports put the purchase price at $100m-$150m less than that stated in the OIO Decision. It follows a recent pattern of NZ gaming businesses being bought by overseas companies. For example, in 2018, Chinese company Tencent paid at least $100m to buy Kiwi company Grinding Gears.
"NZ" Company Sold From One Foreign Owner To Another
Bentley Systems Incorporated (United States 86%, Germany 14%) got OIO approval to buy Seequent Holdings Ltd (United States 46%; New Zealand 9%; Various 45%) for approximately $1.46 billion. To quote the OIO: "The Applicant, Bentley Systems Incorporated is a large-scale United States based infrastructure engineering software company, with offices and customers around the world".
"The Target, Seequent Holdings Limited, is a leader in geoscience software that enables decision making in the mining and exploration, civil engineering, environmental, and energy sectors. Seequent's head office is in Christchurch, and it has offices outside of New Zealand in Australia, Brazil, Canada, Chile, Peru, Russia, South Africa, the United States, and the United Kingdom. The Applicant has satisfied the OIO that the individuals who will control the investment have the relevant business experience and acumen and are of good character. The Applicant has also demonstrated financial commitment to the investment".
"Seequent is a New Zealand success story, having grown from one employee in 2004 to 173 New Zealand staff and a total of 430 globally today. Seequent is 75% owned by US private investor Accel-KKR Capital Partners following a reported $100m equity raising deal in 2018. Wellington-based Pencarrow Private Equity holds a 9% stake with Maloney retaining 3.5%".
"Seequent's headquarters and main R&D centre will remain in Christchurch following the completion of this transaction" (New Zealand Herald, 12/3/21). This "New Zealand success story" was already American-owned, so Seequent is simply being on-sold to another foreign owner.
Retrospective Consent; Pocket Money Penalty
This month it's worth highlighting that the OIO and/or the relevant Ministers routinely grant retrospective approvals. There were three in July alone. Let's look at just one, because it made the national media. The Minister for Land Information and the Associate Minister of Finance gave retrospective approval to Shanghai Yuehua-Kangjian Investment & Management Co Ltd to increase its' shareholding in Shanghai CRED Real Estate Development Co. Limited (Shanghai CRED) from 40.13% to 63.35%; and for Gui Guojie to increase shareholding in Shanghai Bao Yang Asset Management Co Limited, from 33.85% to 60%, resulting in an increase in their indirect interest in approximately 1,118.75 hectares of sensitive land in Karikari Peninsula, Northland. The sum involved was "approximately $56.4 million".
To quote the OIO Decision summary: "The Applicants are an upstream shareholder (Shanghai Yuehua-Kangjian Investment & Management Co. Ltd) and the 83.34% ultimate owner (Mr Gui Guojie) of Shanghai CRED, the owner of Carrington Estate and Whatuwhiwhi Top 10 Holiday Park in Karikari Peninsula, Northland. Shanghai CRED Real Estate obtained consent under the Act and acquired its original interest in the sensitive land in 2013 and 2015. Shanghai CRED was, and is, an established real estate development company in the Asia-Pacific region".
"At the time, Shanghai CRED planned to continue to operate the existing resort on the land in a similar fashion to the vendors, and to further develop it pursuant to a long-term business plan. The investment was anticipated to generate additional tourism to Karikari Peninsula as well as sales from the winery, a significant level of additional investment into the business, increased processing of primary products through the vineyard, and environmental and historic heritage benefits through consultation with the Department of Conservation and Pouhere Taonga Heritage NZ".
"In July 2018, the Applicants notified the Overseas Investment Office that offshore changes in its ownership had occurred in November 2017, ultimately resulting in Mr Guojie's increasing his indirect ultimate ownership of the sensitive land from approximately 39.92% to approximately 83.34%. Subsequently, the Applicants sought retrospective consent for these transactions. The Carrington Estate land consists of a resort and golf course, vineyard and winery, wetlands, residential land comprising an accommodation facility, a disused quarry, and other non-productive land being held for further development".
"Ministers have granted retrospective consent because they were satisfied that the investment had, and was likely to, result in a benefit to New Zealand that was substantial and identifiable. The OIO imposed an administrative penalty of $20,000 for the retrospective consent. If consent had not been granted, the OIO intended to progress its investigation and determine whether or not to apply to the Court to require disposal of the assets acquired in breach and/or seek civil pecuniary penalties".
The New Zealand Herald headlined an article: "Shanghai Billionaire Gets $20,000 Penalty Over $56.4 Million Northland Investment" (1/9/21) "A company owned by a Shanghai billionaire has been fined $20,000 for failing to get consent after a shareholding change affecting ownership of the 1118ha Carrington Estate on the picturesque Karikari Peninsula in Northland".
"Damien O'Connor, Minister for Land Information and Associate Minister of Finance Megan Woods ruled in the matter, according to the Overseas Investment Office. Entities controlled by Gui Guojie got retrospective consent over control of the Carrington Estate and the Whatuwhiwhi Top 10 Holiday Park but had they not done that, the State was considering court action, possibly forcing sales. Ownership activity dates back to 2013 and 2015 when the billionaire's company got State consent and bought its original interest in the land, classified as sensitive so therefore needing State clearance for any foreign ownership".
"When the Chinese businessman's interests bought via Shanghai CRED last decade, plans were to continue to operate the existing resort on the land in a similar fashion to the party he had bought it from and to further develop it in a long-term business plan. That purchase was to generate additional tourism to Karikari Peninsula, sales from the winery, more investment into the business, increased processing of primary products through the vineyard and environmental and historic heritage benefits via consultation with the Department of Conservation and Pouhere Taonga Heritage NZ. But in July 2018, the OIO learned of ownership changes, which meant Guojie's indirect ultimate ownership shot from about 39.9% to about 83%".
The Herald asked my opinion of this retrospective consent and accompanying $20,000 administrative penalties (plus a couple of other such penalties) in the July Decisions. I described them as "laughable" (I can't cite the Herald article containing my reaction, because it's behind a paywall). Such sums are peanuts to those big boys, plus they get what they want retrospectively approved. They'd just factor it in as "the cost of doing business".
Buying Up Bus Companies
This month's one Decision is chosen to highlight the increasing foreign ownership of New Zealand public transport companies. To quote the OIO: "ICG Kinetic Trust - Australia (approximately 82.45%) United States of America (11.14 %) South Korea (3.48%) Canada (2.62 %) Switzerland (0.31%)"" is the buyer. The seller is "OPSEU Pension Plan Trust Fund, Kinetic TCo Pty Limited ("the Target") and certain shareholders of the Target - Canada (94.65%) Australia (5.35%)".
"The Applicant is acquiring up to 49.9% of the shares in the Target. The Target's subsidiary company acquired Go Bus in August 2020 after receiving OIO consent. Go Bus provides bus and coach transport services in 29 locations around New Zealand. The Target provides public transport services in Victoria, Queensland, New South Wales, Tasmania, South Australia, Northern Territory and New Zealand, including operating SkyBus and Go Bus services. The Target will continue to be managed day-to-day by its existing management team. The Applicant has satisfied the investor test criterion. The Minister of Finance has determined that the Investment is not contrary to New Zealand's national interest".
In her write up of the June 2020 OIO Decisions, Linda Hill recorded that the OIO approved Go Bus being sold to Kinetic. "The vendor is Go Bus Ltd (Ngāi Tahu Holdings Corp., NZ 66.7%; Te Whakakitenga o Waikato Inc., NZ 33.3%). Price withheld" (as it also is for the August 2021 further sale). "Kinetic is a Melbourne-based public transport company, known as AATS Group prior to August 2019. It is majority owned by one of Canada's largest pension funds, OPTrust. See here for Kinetic's history and 13 subsidiary bus companies in Australia and NZ".
"Go Bus was NZ's largest bus operator, with key Government contracts to operate urban services in Auckland, Hamilton and Christchurch, and is the largest provider of school bus services, as well as owning Johnston's Coaches. Kinetic's Website says its new fleet of electric buses for Auckland Transport will connect growth suburbs with Auckland Airport. In Greater Christchurch, it will operate a further 25 new electric buses for Environment Canterbury (ECan)".
So, New Zealand's largest bus operator was sold from one foreign owner to another, one year later. This sale was not a one off. Ritchies runs public bus services throughout NZ. Its Website boasts "100% New Zealand Owned And Operated". No more. Also in August 2021, it was sold to private equity behemoth KKR (Kohlberg Kravis Roberts), a giant investment company in the United States.
So, when you buy a ticket on a Ritchies bus, that will join a global river of money flowing into the accounts of KKR's shareholders: the world's biggest banks, investment funds and rich individuals. KKR makes its money by re-engineering companies for profit, and selling them off. KKR is one of the world's biggest private equity funds. See Linda Hill's "Private Equity Funds: The Swirling Billions Of The 1% Reach NZ" in Watchdog 154 (August 2020).
Declined
The Decision I've chosen to highlight this month illustrates the fact that, just occasionally, an application to the OIO gets rejected. The Minister for Land Information and the Associate Minister of Finance declined consent for Gresham House Forest Carbon (NZ) Limited and Gresham House Forest Carbon (NZ) LP United Kingdom (100%) to buy 100% of the shares in NZCF (Invest Holdings) Limited, New Zealand (100%) for a withheld price. To quote the OIO:
"Consent is declined for the Applicants to acquire 100% of the shares in NZCF (Invest1) Limited that owns a freehold interest in approximately 12,356 hectares of existing forest land across New Zealand. The Applicants are part of an investment fund established for the purpose of investing in New Zealand forestry. The Applicants applied for consent to acquire 100% of the shares in NZCF (Invest1) Limited that owns a freehold interest in approximately 12,356 hectares of land, 8,871 hectares of which is existing forest land, across New Zealand that they intend to continue operating as permanent carbon forestry".
"The Applicants intended to invest additional funds and create new jobs by planting an additional 78 hectares with trees, protect around 704 hectares of indigenous vegetation on the forest land, and offer riverbed back to the Crown. The Vendor intended to reinvest part of the sale proceeds in acquiring land to plant additional trees. For consent to be granted, Ministers needed to be satisfied that the Investment would result in substantial and identifiable benefit to New Zealand. Both Minister O'Connor and Minister Woods were not satisfied that the Investment would result in a substantial and identifiable benefit to New Zealand".
This is so rare as to be one of only five applications to be declined consent from January-September 2021 inclusive. That is not quite as spectacular as the good old days of the 1990s when year after year went past with nothing declined but it is safe to say that the OIO and/or Ministers (and we're talking solely Labour Ministers at this stage) approve the vast majority of applications. CAFCA sticks to its claim that the OIO is a rubber stamp and that the "foreign investment oversight regime" is much more theoretical than real.
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