Crafar deal ordered to reconsideration
February 15th, 2012 at 1:56 pm by David FarrarStuff reports:
The High Court has ordered Government ministers who agreed to a Chinese company buying the Crafar farms to reconsider the application.
The judgement of Justice Miller follows a successful application by a group of New Zealand farmers and iwi, led by Sir Michael Fay, to block the sale of the 16 in-receivership farms.
The group had sought a judicial review of the Overseas Investment recommendation for approval for the $210 million purchase by Shanghai Pengxin and the Government’s support for that recommendation.
Justice Miller said the application for review was granted and the decision by Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Coleman was set aside.
The judge directed that the ministers reconsider the application by Shanghai Pengxin subsidiary Milk New Zealand.
It will be interesting to see the full decision, but it suggests that the OIO and Ministers did not consider one or more of the criteria properly. This will not be helpful for the Government as it keeps the issue alive longer, and suggests that there may have been grounds to turn the application down. It doesn’t mean that there were grounds – just that there might have been,
I will be surprised if Sir Michael and associates ends up with the farms at the end of this, but it is possible if a different decision is arrived at.
The Herald has the judgement here. I found this part interesting:
CFIPG (Fay etc) came late to the sale process and has still to commit itself to a formal offer … it has nominated a price, albeit one that the receivers claim to find unworthy of acknowledgement.
So Fay has yet to even make a formal offer. If he can knock Pengxin out, then he can lower his bid even further, so his gain may be greater than even the $40m between the so called bids.
In terms of the judgement, the claim that Pengxin were not experienced enough was not upheld. Where the court has ruled that the OIO and Ministers erred was in assessing benefits vs a counter-factual.
The OIO used a counter-factual of the status quo (farms run down), and the argument was that the counter-factual should be a NZ company buying the farms and also investing in them.
The OIO argued against this on the grounds that this would require a hugely complex analysis of not just every application, but to model what a rival bidder may do. However they lost the argument.
My 2c is that it would be better for an analysis to be against a counter-factual which is based on a rival bidder – but that this may well be hugely impractical in many cases.
Related posts:
- Final Crafar hurdle defeated
- Fay loses on Crafar farms at Court of Appeal
- Crafar sale approved
- The Crafar dilemma
February 15th, 2012 at 1:58 pm
:sigh:
Bet the MSM are wrapped that this issue will be kept in the public’s eye for longer.
Vote:February 15th, 2012 at 2:33 pm
Whilst I don’t like the idea of selling farm land to any offshore party, I find it incredible that Fay et al can get a review when they did not put in an acceptable bid.
Vote:The rules for offshore investment need to be very clear so that we don’t have this happening again. We don’t want a repeat of the Auckland Airport situation where Cullen capriciously interfered with a legitimate transaction. Any potential investor should know the rules from the outset, and decisions regarding investment should not be determined by the whim of the goverment of the day.
February 15th, 2012 at 2:34 pm
New Zealand land should be owned by resident New Zealanders. And farms in particular should be lived on by their owners. We have seen enough of the ‘financial model’ of remote ownership of ‘financial instruments’. It’s been a disaster. We will become a wealthy country only when we regain ownership of our stuff. And the enterprises are owned by the operators.
Vote:February 15th, 2012 at 2:42 pm
IMHO like any business I want to see the best results. That means the best operators operating the assets to get the best out of them
Thats how we grow the pie. As an shareholder in Auckland Airport I still say Cullen and Clark stole my property right from me and acted as a bunch of Commies in not letting me sell my shares to the Canadian pension fund.
Fay is an opportunist, If he gets to buy the farms he will asset strip them like he did Telecom and the Railways. Then he will sell them piece meal to foreigners one by one.
The guys a commercial hazard with no morals or ethics and wouldnt know good corporate governance practise if it smacked him in the face.
Vote:February 15th, 2012 at 2:44 pm
@KH That horse has bolted and we will never get back to the days of owner/occupiers for farms IMHO.
Vote:February 15th, 2012 at 2:52 pm
And farms in particular should be lived on by their owners.
If that became a requirement who would buy all farms that are not owner occupied, and with what money?
Would it rule out companies owned by more than one person owning a farm?
What about multiple private owners?
What about trusts?
When part owned by banks at what level of mortgage should the bankers be not required to live on the farm?
What about other businesses, like motels?
Vote:February 15th, 2012 at 2:54 pm
“And farms in particular should be lived on by their owners.”
Well, that rules out any ‘iwi’ ownership then, doesn’t it?
Vote:February 15th, 2012 at 3:07 pm
What KH said. The OIA should be amended to further restrict these sales. As BNZ economist Tony Alexander commented:
“Avoiding being tenants in our own land is an extremely valid goal which, if not satisfied, would take New Zealand completely away from the sort of place people were seeking when they started flocking here in the 19th century.”
The debate about the sale of the Crafar farms sidestepped the fact that during the past five years, the Overseas Investment Office had approved proposals for the sale of 1.1 million hectares of land, of which 117 hectares was approved for China buyers and 939 hectares for buyers from Hong Kong.
Mr Alexander said the question which needed answering was how to best make money out of the land sales New Zealand was already making.
Should land sales lead to the greatest opportunities for extra sales of high value-added products, extra processing in New Zealand and extra capital for additional expansion?
Or should New Zealand instead be thinking in terms of not selling but leasing the land to foreigners, with again the same questions asked?”
Vote:February 15th, 2012 at 3:16 pm
Bring back piggy. He wouldn’t have stood for any of this nonsense.
Vote:February 15th, 2012 at 3:40 pm
Lastmanstanding: Once again I agree with your whole comment.(688) Couldn’t of worded it better.
Vote:February 15th, 2012 at 3:52 pm
Sparky @ #:40
No you couldn’t. You are incapable even of ‘wording’ a comment porperly.
Vote:February 15th, 2012 at 3:54 pm
lastman,
As as been discussed before, the state was technically Fascist, not Communist, when it prevented you selling your own property to whoever you wanted.
Vote:February 15th, 2012 at 3:59 pm
But, but, the Dom Post on 27/1 reported that ‘The successful Chinese bid for the Crafar farm estate “well and truly exceeded” all the Government’s conditions for a purchase, Prime Minister John Key says.’
So if the bid ‘well and truly exceeded’ the required conditions then how could the High Court make this decision??
This is not a good look for John Key or his Government.
Vote:February 15th, 2012 at 4:24 pm
Don’t let fay get the farms. I dislike the man intensely. He is pretending to be doing NZ a favour when he is only intent on making a quick 40 million bucks.
Vote:February 15th, 2012 at 4:24 pm
Formulating a hypothetical counterfactual will be difficult analysis. I assume one could argue that a solvent investor as a counterfactual must meet minimum environmental standards etc and that would be a certain figure. One needs to ascertain whether the Milk NZ proposal will go beyond this. If it does then the proposal could be approved.
Vote:February 15th, 2012 at 4:37 pm
And who will end up paying for this messy court business? I certainly hope it’s not the tax payer.
Vote:February 15th, 2012 at 4:52 pm
Clearly the media and the usual leftards haven’t read this Decision carefully, because the decision to approve the sale to Pengxin hasn’t been scuttled at all. Instead, the Ministers have been directed to reconsider the benefits of any sale to Pengxin vs a counter-factual.
So its quite conceivable that the original decision will stand.
The opponents of this sale shouldn’t be popping champagne corks just yet….
Besides, Fay et al haven’t even made a bid as their tactics were clearly to wait in the wings whilst they tried to bugger the sale to Pengxin – all in an effort to become the sole bidder.
At a price well below that agreed between the receivers and Pengxin.
Quelle surprise…..
Vote:February 15th, 2012 at 5:01 pm
@ KH 02 34, that will really fuck with the planners, and their dreams of how the world works.
Vote:A Company with 200 shareholders buys a 200 acre farm on the shores of Lake Wanaka and they will all have to build a house on it.
February 15th, 2012 at 5:29 pm
KH 2.34pm. Our son in law manages a Maori Trust Farm of about 9,000 acres. When he took over as manager about 5 years ago the farm had debt of about $3million. That debt has been cleared apart from a nominal working overdratf.
If the owners lived on the farm it would quikly be back in blackberry and scrub with poor quality stock – as is the case with an adjoining farm which one of the trustees has managed for the last year or so..
Vote:February 15th, 2012 at 5:34 pm
Some judges never cease to amaze me.
As I understand no other offer was actually made, only talked about by Fay’s PR company.
Crafer ran the farms into the ground with his incompetance which is why he went bust.
Vote:February 15th, 2012 at 5:44 pm
The love of socialism runs deep in this country. So if I sell the farm and move into the city I can buy that expensive house for way less then it’s worth especially if a foreigner is also in biding? No didn’t think so. It’s way pass time we have one law for all, many may not like it but the alternatives are crap, unfair and unjust.
Vote:February 15th, 2012 at 6:22 pm
Owner Operators ?? It’s the way to go.
Vote:Try reading Jane Jacobs. “Cities and the Wealth of Nations” She considers the northern Italian plain. An area arguably the richest place in the world. More wealthy than Germany as a nation. Where the commercial life is characterised by tightly held family business, many not at all small, who work together closely and are innovative and use high tech.
Does that sound reminiscent of our family farming sector – as it used to be – highly productive, innovative, highly trained and educated family members in control. New Zealand has thrived economically on the back of that.
Actually we should stop selling off the city businesses via the faceless financial services industry as well.
February 15th, 2012 at 6:33 pm
This is a ludicrous decision which will surely either be overturned on appeal or the law changed for clarification. The judge orders the OIA to compare the foreign buyer against a mythical NZ purchaser, to ignore any difference in offer price, to ignore the benefit of bringing overseas capital into New Zealand as opposed from diverting NZ capital from other NZ investments and to assume the NZ purchaser will make identical improvements.
There is no possible way the foreign buyer can show benefit under those absurd conditions.
Vote:February 15th, 2012 at 7:06 pm
How much did Sir Michael Fay pay the Judge?
Vote:This man has cost NZ dearly, and he is trying to do it again
February 15th, 2012 at 7:12 pm
NZ going down the gurgler faster and faster with decisions like this one.
Vote:February 15th, 2012 at 7:37 pm
Yeswedid.
The judge said that the OIO applied the incorrect legal test. The test is not recorded in the Act. It is the same test formulated when Labour was in power and applied by Labour on all sales. The approach had never been challenged and so it was natural for the Government to accept the recommendation based on the legal principles believed and stated by its advisors to be correct. We may end up with exactly the same outcome when the OIO applies the new test. The judge did not say that the decision on the facts was wrong. He cannot say that.
Vote:February 15th, 2012 at 9:58 pm
It is a curious debate between the legal fraternity.
The OIO seem to have taken a view that they simply judge the transaction against the status quo, the judge (and Plaintiffs) are saying you need to take into account what might happen, with a strong subplot of looking at what alternative owners might do.
The foolishness of this preoccupation with what the other lot might do is that it then very quickly becomes a matter for manipulation by interested parties. In this case the vendor need say no more than we are only going to sell to Milk NZ otherwise we will let it slowly deteriorate. On that basis they can always sell to international interests. The legal fraternity have been debating the wrong point.
I frankly, however, do think the OIO have bought this on themselves.
In economic terms the private aspects of the transaction are captured in the price that is being paid. In particular the price paid will reflect the purchaser’s ability to create superior private returns from the investment. This makes much of the discussion about whether benefits might or might not accrue under different ownership irrelevant – the price being offered tells us that, and neither the OIO, the Ministers or the Plaintiffs can hope to make a better judgement on this score.
Sections 17 (2) (b) – (f) deal with ensuring the particular transaction “does no harm” in non-economic terms. Note that while there are brownie points for doing better these are tested against an absolute test, not a relative test comparing with what another owner might do (which somewhat undermines some of the argumentation in the judgement).
So OIO knows the overseas investor see greater future private benefit in this transaction than the next bidder, and the OIO also need to be sure the overseas investor meets the requirements of our environment etc law. So what does this leave the OIO to worry about?
Section 17 (1) (a) is left just looking at the economic externalities, those economic values to NZ that won’t be captured by private interests. Thus 17 (2) (a) speaks to the usual mantra of jobs, innovation, export, competition, inward-bound investment and value adding to primary.
Now consider this: someone from overseas (i.e. external to NZ) is coming in and the OIO has to decide if they will create greater externalities for the NZ economy than someone who is already here. Having made the decision in favour, on judicial review they argue not that they decided on the increment value the overseas investors will make on economic externalities, they apparently argue that the basis for their decision is that the overseas investor will do better than the status quo. Duh.
At least the ability to go back and look at all this again give the chance to get it back on an even keel.
Vote:February 15th, 2012 at 10:18 pm
Yes, that’s my view too. But I’ve only skimmed the judgment. Didn’t the court rule that a wrong counterfactual was used, rather than ordering them to use one? The Judge said (didn’t he?) that status quo could be used as a counterfactual in some cases, but not in this case. So it’s not that a counterfactual must be used, rather that they used the wrong one in this particular applicaation.
Do I have this right?
Vote:February 15th, 2012 at 10:22 pm
The new test the judge has cone up with is bizarre and unworkable. It will end up being a case of assuming your conclusions.
The question now becomes, if the hypothetical NZ buyer invests in the farm, does that mean they don’t invest that capital in another NZ based asset? Surely you have to expect that the total amount of investment in NZ will increase with foreign investment. NZ isnt suddenly going to save more to make up for the forgone foreign investment. Or does the OIO now need to run a general equilibrium macro-economic model to assess this?
This seems like a case of judges forgetting they don’t actually no very much about important technical detail, and leaving it to others.
Vote:February 16th, 2012 at 12:54 am
Unbelievable. I honestly don’t recall any other foreign investors being made to jump thru so many hoops just for the mere 7k ha land. They better be equally tough when the next American / British / German buyer comes knocking.
But forget all that. I’ve been house hunting for the last 3 months, and out of the 5 auctions I’ve been to, I was outbidded in 4 of those by some asian families, and once by an elderly couple from the UK. What I really to know, is how do I block asian families from bidding in the first place, and force the house owners to sell me their houses at 25% less than what the asians are willing to pay.
Anyone got Sir Michael’s contact details?
Vote:February 16th, 2012 at 6:04 am
I would be interested to know whether any of the farms in the Crafar portfolio are subject to Treaty of Waitangi claims or future land claims as alot of Central North Island Land went sideways in dodgy dealings by the Crown.
We don’t need to rush these decisions, under a Free Trade Agreement China needs to change it’s law so we are allowed to buy land in China.
With the Chinese there is not a level playing field, Pengxin are a wing of the Chinese Government, and guess how much workers in China get paid an hour, no wonder the Chinese elite can pay such high prices for our land.
I would be interested to see the Finanacial Accounts for the Crafar Farms and the Financial Projections for the next ten years. Would be interested see their ROI figures, Return on Investment or DCF’s Discounted Cash Flows.
I did hear they are more interested in the minerals underneath the farms, I however can not qualify that statement.
Vote:February 16th, 2012 at 10:01 am
The High Court decision is an interesting one of interpretation of effects. The OIO has looked at the sale before and after to judge the economic benefits whereas the high court has sent the decision back saying they need to consider the economic impact with the overseas sale and without the sale. Ultimately this comes down to one of price.
It seems likely that the OIO will make a new recommendation to the ministers int he next couple of days and the sale will be approved. it is hard to see what the fuss is about.
Vote:February 16th, 2012 at 11:32 am
Mark, I’ve no idea what you are trying to say and it doesn’t sound as though you have read the judgement. I summarised it above.
Vote:February 16th, 2012 at 11:44 am
pdm….
This farm your son manages…any fallow deer on it ?
Vote:February 16th, 2012 at 12:15 pm
This decision is one I find incomprehensible. It was instigated for financial advantage by Fay and his fellow travellers, who it transpires have not actually made a formal bid. The learned judge has suggested a new test for value, which I think will be very hard if not impossible to determine satisfactoriy, thus leading to yet another judical review.
It was my understanding that the Chinese bidder undertook to spend some NZ$100m investing in and developing new added vale brands to promote NZ source product in Asai. Given that the Crafar farmes would not be able to supply all this product, clearly there was spin-off to other NZ farmers. What significant added value would a NZ farmer be able to bring?
Vote:February 16th, 2012 at 12:29 pm
adamsmith1922, not so much incomprehensible as indefensible, reprehensible and intolerable to allow to stand.
Vote:February 16th, 2012 at 12:35 pm
The court has asked the OIO to consider an imaginary bidder. I doubt whether the recievers will except an imaginary bid.
Vote: