The OIO screens all sizable foriegn investment in NZ but under the TPP the criterea for approval could change.
The Trans-Pacific Partnership could halve the number of major foreign investments in New Zealand which need to pass “good character” and business experience tests. With some recent developments Overseas Investors in NZ may be wondering if the landscape has changed. OIO Processes have been in the spotlight with some suggesting the office is overstretched and needing clarification and open audit of its methodology.
The Government requires foreigners who want to make an investment of more than $100 million to get approval from the Overseas Investment Office (OIO), which evaluates their record in business and their character. Under the Trans-Pacific Partnership (TPP), the threshold above which an investor will need this approval will double to $200 million.
- The threshold for screening foreign investment in New Zealand to be lifted from $100m to $200m
- In the last 5 years, 87 applications have been made by investors above the $100m threshold
- 52 per cent of those applications have been between $100m and $200m
The Overseas Investment Office is the organisation responsible for foreign investment in New Zealand. An application must be made to the OIC by non-residents planning to invest more than NZ$50 million establishing a business, or to purchase an equity share of greater than 25% in a New Zealand company worth more than $50 million. OIC approval is also required to invest in land over five hectares, islands, the foreshore or reserves.
The OIO considerations are often the longest part of the approval process in what are sometimes lengthy and complex negogiations. Two such deals with Chinese partners, Shanghai Pengxin and Bright Dairy Foods, may have very different outcomes.
Shanghai Pengxin is challenging to government’s rejection of its Lochinver purchase. 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. Labour points to the four year funding freeze as the cause for OIO delays.
The Overseas Investment Office (OIO) hasn’t received an increase in funding or staff for four years – causing long delays for sellers and buyers and tarnishing New Zealand’s good name as a place to invest, says Labour’s Land Information spokesman Stuart Nash.
“Answers to written questions show that in the 2011/2012 financial year the OIO received less than $3m – exactly the same as the 2014/2015 financial year. The Lochinver decision took over 12 months and the average time to process consents has jumped 30 per cent from 43 days in 2012 to 56 days in 2014. The process is long-winded, buyers’ funds have to be set aside as proof for the OIO and decisions are at the whim of the minister and focus groups. No wonder Shanghai Pengxin pulled out of the Northland Farms sale.
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.
“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. 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. 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.”
China’s state-owned Bright Food Group was favoured to win approval in a deal which saw it acquiring 50 percent of New Zealand’s biggest meat company.the transaction will be approved by the Overseas Investment Office in a process it expects will take six-to-nine months, said chief executive Dean Hamilton, who will stay on through the ownership change. Shanghai Maling also needs Chinese regulatory approval for an investment outside of China.
Hamilton said the lengthy turnaround time expected of the OIO, which exceeds its benchmark for applications, was more to do with the limited resources of the regulator and the size of the deal than any difficulties over the investment per se. He said the government’s decision to decline Shanghai Pengxin’s application to buy Lochinver Station didn’t suggest Shanghai Maling’s proposal would fail because the transactions were dissimilar.
New Zealand First leader Winston Peters said the threshold was already too low and the new policy would open New Zealand up to “dubious investment practices”.
“At a time when huge sums of ill-gotten money are transferred around the world, and our checks through the Overseas Investment Office are already weak, we should be raising the bar against unscrupulous money merchants, not lowering it,” Mr Peters said. Mr Joyce disagreed, saying that money-laundering and anti-corruption systems were already in place.”I don’t think it creates any risks for New Zealand,” he said.
Threats to Land ownership
Americans were the largest investors in New Zealand dairy farms in 2013 and 2014, according to analysis of Overseas Investment Office decisions by KPMG. New Zealand already has a higher threshold of $496 million for Australian investors as a result of its Closer Economic Ties agreement
US investors accounted for 54 percent of land sold and 27 percent of the total $297 million paid. While 26 OIO decisions were approved during the period, only 18 disclosed the consideration paid. China accounted for only one of the 24 transactions for dairy land approved by the OIO – that was Shanghai Pengxin’s acquisition of a controlling stake in Synlait Farms in Canterbury, which accounted for 12 percent of hectares sold and 21 percent of the consideration paid during the two-year period. Read More
Check out more stories on the OIO
Scoop.co.nz (press release)–14/10/2015
New Zealand Herald–14/10/2015
Otago Daily Times–11/10/2015
Shanghai Pengxin mounts legal challenge to government’s rejection …sharechat-14/10/2015
New Zealand Herald-30/08/2015