AUSTRALIAN AGRICULTURE INVESTMENT UPDATE FIRST EDITION JUNE 2015
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Corrs has specialist expertise in Australia’s agriculture industry and we monitor investment activity in this sector
INTRODUCTION Welcome to the first edition of the Australian Agriculture Investment Update, a quarterly publication prepared by Corrs Chambers Westgarth for clients and contacts who are interested in investment activity in the Australian agriculture sector.
This publication provides a brief summary of information about recently announced and completed deals, market rumours and potential opportunities and relevant regulatory updates. We would appreciate your feedback on how we can improve this publication to meet your needs. In particular, let us know if there are specific areas of Australia’s agriculture industry of interest to you that you would like us to cover or comment on in the next edition. You can provide feedback by email to [aidan.lavin@corrs.com.au].
RECENT ANNOUNCEMENTS As reported in Mergermarket, Chinese ball bearing manufacturer Zhejiang Tianma Bearing Group Co. recently announced on the Shenzhen Stock Exchange that it has agreed to acquire the operating assets of Northern Territory cattle station Wollogorang Station. It is understood that neighbouring property Wentworth Ranch is also part of the acquisition. The properties, which are owned by investor Paul Zlotkowski, are being sold for a reported A$47 million. Freedom Foods Group Limited, a company listed on the Australian Securities Exchange (ASX), has announced that the Australian Fresh Milk Holdings consortium, which comprises Freedom Foods, Australian dairy group Leppington Pastoral Company and Chinese dairy company New Hope Dairy Holdings, has entered into a heads of agreement to acquire New South Wales-based Moxey Farms for an unspecified amount. The terms of
the acquisition will allow Moxey to continue operations in joint venture with Leppington Pastoral Company under a farm management agreement struck with the broader consortium. The agreement would also allow Moxey’s owner, the Moxey family, to acquire a stake in the consortium. The acquisition of Moxey will aid the consortium in creating a platform from which to invest in greenfield sites across southern New South Wales and northern Victoria. The presence of Chengdu-based New Hope Dairy is expected to provide the consortium with access to growth markets in Asia.
RECENTLY COMPLETED DEALS Chinese conglomerate Hailiang Group contracted to purchase cropping and cattle land in southern Queensland earlier this year. As reported in the Australian Financial Review, Hailiang contracted to purchase the Hollymount and Mount Driven stations for a reported asking price of A$31.5 million and A$10 million respectively. The stations collectively cover an area of 50,000 hectares. Hailiang is one of China’s largest companies, with interests in mining, agriculture and real estate. The company has also been active in the Australian property market, investing earlier this year in a large residential development site in Western Sydney. Hailiang’s acquisition of the Hollymount and Mount Driven stations follow similar investments last year by Chinese entities Yiang Xiang Assets and Orient Agriculture.
The Public Sector Pension Investment Board, one of Canada’s largest funds, recently completed the purchase of two cattle properties in central Queensland through the Emerald-based cattle operator Hewitt Cattle Company. According to a recent report in the Australian Financial Review, Hewitt Cattle Company bought cattle properties Oakleigh and Stoodleigh for A$13 million. The properties, which were previously owned by Sir Graham McCamley, cover a combined area of 13,650 hectares and comprise six freehold titles and fifteen paddocks. The pension fund acquired a significant stake in Hewitt Cattle Company earlier this year. The pension fund’s investment in Hewitt Cattle Company follows similar investments in Australian agriculture assets in recent years by other foreign pension and sovereign wealth funds, including Qatar-based Hassad and the US’s TIAA-CREF Global Agriculture LLC.
MARKET RUMOURS AND OPPORTUNITIES
The potential investment comes at a time of growing Chinese investment in Australian cattle assets
Australian agriculture chemical company Agripower is rumoured to be looking to secure a ‘strategic partnership’ with potential investors. The company, which specialises in producing high quality silica-based fertiliser applications, is particularly interested in potential relationships with Chinese investors. Agripower’s Managing Director, Peter Prentice, reportedly said that Agripower is looking to collaborate with either large-scale fertiliser companies with existing networks in China or other entities such as state owned enterprises which maintain substantial agricultural assets in China. Agripower is part owned by Singapore-based private equity firm Crescent Point Group and a small number of individual shareholders. Chinese beef giant Chongqing Hondo Agriculture Group Co. is reportedly considering largescale investment in Australian cattle properties. The company is looking to outlay between A$50 million to A$100 million in order to secure potential investments. The company’s President, Qin Ya Liang, reportedly said that Chongqing Hondo was focused on partnering with corporate farmers as well as small to medium enterprises and noted that the potential investments form part of a broader strategy by the beef giant to secure steady product supply. The potential investment comes at a time of growing Chinese investment in Australian cattle assets and follows Chinese company Hailiang Group’s acquisition of cattle and cropping land in southern Queensland earlier this year. Privately-owned Gschwenter Holdings is rumoured to be interested in selling two cattle properties located in the Northern Territory. The sale includes Scott Creek Cattle Station and Ban Ban Springs Cattle Station, with a reported sale price of over A$14 million and A$9 million respectively.
Owner Gunter Gschwenter has reportedly said that expressions of interest have been received from both Australian and Chinese grazing companies with an interest in accessing the Australian meat market. Advisory firm BlueMount Capital has been retained to assist with the sale. Australian meat processor Bindaree Beef is reportedly seeking investors as part of a strategic move to raise capital for future expansion. The company, which set a late April deadline for firstround bids, is reportedly seeking to raise A$100 million to enable increased processing as well as entry into new export markets. The company is rumoured to have attracted interest from Brazilianowned beef producing giant JBS as well as several unnamed Japanese and Chinese strategic investors. Bindaree’s owners, the McDonald family, are reportedly interested in a supply or off-take partner rather than private equity investors. Privately owned Australian beef producer Consolidated Pastoral Company is rumoured to be considering a partial sale of its business following strong interest from prospective buyers. With an estimated value of A$668 million, Consolidated Pastoral Company is one of Australia’s largest agrifood businesses, handling a portfolio of over twenty cattle stations covering an area of 5.7m hectares. According to the reports, sale documents have been sent to buyers ranging from American private equity firm The Carlyle Group, sovereign wealth fund China Investment Corporation and Queensland Investment Corporation. The move is part of majority shareholder Terra Firma’s strategy to obtain additional funding to grow the business. The proposed partial sale follows the company’s acquisition earlier in the year of the 179,000 hectare Bunda Station for an undisclosed sum.
Privately owned beef producer S Kidman & Co may be looking to sell its beef producing business as record high beef prices and the declining Australian dollar create ripe conditions for a potential sale of the company. The sale of the business is expected to be the largest cattle station transaction in Australia since AMP sold Stanbroke Pastoral Company to a consortium in 2003. Kidman Managing Director, Greg Campbell, reportedly said that the sale represents a decision by the Kidman family to capitalise on current market demand. Kidman supplies around 1.3 per cent of Australia’s boxed beef exports, with its cattle station portfolio spanning Anna Creek (SA), Durham Downs (QLD), Helen Springs (NT) and Ruby Plains (WA).
Chinese citrus producer Dongfang Modern Agriculture Holding Group is rumoured to be looking to list on ASX in mid-August 2015. Dongfang, which specialises in the cultivation of navel oranges, pomelos, tangerines and camellia, is planning to raise between A$36 million and A$50 million in the proposed listing. Barry Dawes, Executive Director of lead manager Paradigm Securities, reportedly said that the Jiangxi-based company intends to use the raised capital to acquire further plantations and a factory to manufacture camellia oil, a major growth area for the company. Mr Dawes has reportedly said that the limited waiting times and regulatory certainty associated with listing in Australia prompted Dongfang to list outside of China. According to the report, Dongfang will continue investing in the Chinese market for the foreseeable future but has not ruled out future operations in Australia.
ASX now appears to be a genuine alternative for Chinese companies seeking a foreign listing. Cost and regulatory certainty are often cited as driving factors
REGULATORY UPDATES FIRB – screening threshold lowered for foreign acquisitions of agricultural land
Australia’s foreign investment legislation is currently being re-written and we will provide a further update on key changes in the next edition
From 1 March 2015, prior approval for a proposed acquisition of an interest in agricultural land in Australia must now be sought from the Foreign Investment Review Board (FIRB) where the cumulative value of agricultural land that a privately-owned foreign investor indirectly or directly owns (including the proposed acquisition) exceeds A$15 million. The screening threshold was previously A$252 million per acquisition. Consistent with Australia’s free trade agreement commitments, the cumulative A$15 million threshold will apply to all privately-owned investors except those from the United States, New Zealand, Chile, Singapore and Thailand. Investors from these countries are subject to the following investment thresholds: •
•
Singaporean and Thai investors will require prior approval if acquiring a substantial interest in a primary production business valued above A$50 million; and United States, New Zealand and Chilean investors will require prior approval if acquiring a substantial interest in a primary production business valued above A$1,094 million.
FIRB still requires foreign government investors, including state owned enterprises, to notify FIRB and obtain prior approval before making a direct investment in Australia (including in agricultural land or an agribusiness) regardless of the value of the investment.
A revised version of Australia’s Foreign Investment Policy was released by FIRB earlier this year and can be accessed here. The Government has also announced that it will establish a foreign ownership register of agricultural land to provide a clearer picture of foreign investment in Australia’s agriculture sector. According to a media statement released by Treasurer Joe Hockey on 11 February 2015, the Australian Taxation Office will begin collecting information on all new foreign investments in agricultural land (regardless of value) from 1 July 2015.
Upcoming foreign investment changes On 25 February 2015, the Treasurer announced that the Government would be: •
introducing a proposed A$55 million screening threshold for foreign investment in Australian agribusiness (down from A$252 million); and
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imposing fees on all foreign investment applications (most of which range between A$5,000 and A$25,000), with effect from 1 December 2015.
In addition to the above changes, Australia’s foreign investment legislation is currently being rewritten and we will provide a further update on any changes in the next edition later this year.
OUTLOOK We expect high beef prices, a weak Australian dollar and Australia’s free trade agreements with China, Japan and Korea to further drive foreign investment in Australia’s beef industry and the agriculture sector more generally throughout 2015. If successful, we hope Dongfang Modern Agriculture Holding Group’s proposed ASX listing will help pave the way for further opportunities for Chinese agriculture companies to list in Australia.
The outlook for investment in Australian agriculture remains positive
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