AUSTRALIAN AGRICULTURE INVESTMENT UPDATE THIRD EDITION MARCH 2016
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INTRODUCTION Welcome to the March 2016 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.
RECENT ANNOUNCEMENTS Chinese milk producer China Dairy Corporation recently announced its intention to list on the Australian Securities Exchange (ASX). The company, which specialises in the production and wholesale of raw milk and the breeding and sale of dairy cows in China’s Heilongjiang province, is planning to raise up to A$20 million in the proposed listing through an offer of up to 100,000,000 CHESS Depositary Interests to potential investors. China Dairy Corporation intends to use the raised capital to develop a new business stream focused on the production of processed liquid milk for infants. Funds raised from the IPO are expected to be applied to equipment acquisition, milk production testing, research and development, facility construction and dairy cow purchases for the initial stages of the company’s processed milk business. According to China Dairy Corporation’s prospectus, the company will also explore the possibility of acquiring further dairy farming and dairy processing operations in both China and Australia. Subject to raising sufficient capital, China Dairy Corporation is expected to list on the ASX in April 2016.
Co-operative Bulk Handling Limited (CBH), a grain growers’ co-operative based in Western Australia with annual revenue in excess of A$3.7 billion, has rejected a takeover proposal from the Australian Grains Champion consortium, which is backed by ASX-listed GrainCorp Limited and Australian Grains Champion (AGC), a West Australian grower-led initiative. CBH Chairman, Wally Newman, reportedly said that the unsolicited proposal to commercialise and list CBH had been unanimously rejected by CBH’s board on the basis that it would result in a loss of grower control and an expected increase in storage and transport charges over the long term. According to recent media reports, the consortium intends to revive its offer and will continue to hold meetings with CBH farmers in coming weeks in an effort to procure a shareholder meeting so that a vote may be held on the proposal. Leading Chinese meat processor and retailer Shandong Delisi Food Co. announced late last year its intention to acquire a 45% stake in Australian integrated beef producer Bindaree Beef Group.
According to a recent stock exchange announcement, the Shandongbased meat processor agreed to pay approximately A$140 million for its stake in Bindaree Beef Group, which is expected to enable the New South Wales-based beef producer to increase its processing capacity and expand into premium beef markets across Asia, including the lucrative Chinese market. As part of its efforts to better service the Chinese market, Bindaree Beef Group will reportedly construct a A$60 million cold storage and distribution centre in the northern port city of Qingdao, Shandong Province. The facility will reportedly have capacity to import and distribute over 100,000 tonnes of beef per annum and is expected to be operational by late 2016. As reported in our second edition (available here), Bindaree Beef merged last year with Australian meat marketing and distribution company Sanger Australia. ASX-listed TasFoods Limited (formerly OnCard International Limited) recently announced that it will seek shareholder approval to exercise an option to acquire Nichols Poultry Pty Ltd, an Australian poultry processor based in Tasmania. Under the terms of the option, TasFoods has the right to acquire 100% of the company, including its poultry processing business and facilities, a wind turbine and 91 hectares of associated land. Nichols Poultry is
the second largest poultry processor in Tasmania, with a focus on producing chicken and turkey meat for the local market. According to the announcement, the consideration for the acquisition will be approximately A$12.5 million, subject to adjustments. It is understood that TasFoods intends to complete a capital raising of up to $A20 million to fund the acquisition and to provide additional working capital. Freedom Foods Group Limited and its Guangzhou-based partner Shenzhen JiaLiLe Food Company have announced that they are considering listing their baby formula joint venture as a separate company. The joint venture is currently building the “Australia’s Own” brand in the Chinese market and is expected to release a specialised infant formula product in 2016-2017. Freedom Foods’ CEO has reportedly suggested that any listing would likely be in Hong Kong. Australian supermarket giant Coles recently awarded a five-year contract commencing January 2017 to Murray Goulburn, Australia’s largest dairy famer co-operative, to supply its home brand cheese. The contract, which is thought to be worth around A$130 million in additional sales, is currently held by Bega Cheese Limited. Murray Goulburn attributes the win to efficiency gains and its proposed A$145 million investment to “significantly increase ‘ready-
to-serve’ cheese capacity and capabilities” at its cheese plant in Cobram, Victoria. Murray Goulburn is also supplying fresh milk to Coles in a 10-year deal which commenced in 2014. Its Managing Director, Gary Helou, reportedly said that its contracts with Coles could assist the company to expand globally, particularly into Asia. Murray Goulburn has subsequently signed milk powder supply agreements with Indonesia’s Kalbe group and America’s Mead Johnson in March 2016 and is reportedly using the deals to underpin a A$300 million investment in a new Victorian processing plant. Despite an initial 10.5% drop in its shares after the Coles contract announcement, Bega remains optimistic about filling its revenue gap by diverting capacity to higher margin products such as infant formula. Bega already produces Bellamy’s infant formula and has partnered with Blackmores to produce a range of infant nutrition products.
RECENTLY COMPLETED DEALS According to the report, the sale is one of the largest cattle station deals in Australian history
According to a recent report in the Australian Financial Review, Australian businessman Brett Blundy has acquired the Walhallow cattle station in the Northern Territory from Macquarie Group’s Paraway Pastoral for a reported sale price of more than A$100 million. According to the report, the sale is one of the largest cattle station deals in Australian history, reportedly including 48,000 head of cattle valued at over A$40 million and 1 million hectares of land valued at A$56 million located in the Northern Territory’s Barkly Tableland. Mr Blundy is also rumoured to be one of the shortlisted bidders for Western Grazing Company’s proposed sale of two of its largest grazing properties. Privately-owned Australian investment company Costa Asset Management has acquired Jindalee Estate Winery, which previously formed part of independent Australian wine producer Littore Wine Group. The Jindalee Estate Winery, which covers an area of 23 hectares and includes warehousing and packaging facilities, has wine storage capacity of 18 million litres and the capacity to crush 15,000 tonnes of grapes per annum. Costa Asset Management’s acquisition of Jindalee Estate Winery follows Littore Wine Group being placed into receivership late last year.
The acquisition adds to Costa Asset Management’s already expansive agribusiness portfolio, which includes interests in tomato glasshouses, citrus orchards and berry farms across New South Wales, South Australia and Tasmania. In a separate deal, Singaporean-managed Duxton Vineyards has acquired the Littore Vineyards in partnership with South Australian businessman Warren Randall for a reported A$20 million. The Littore Vineyards, which are located primarily in the Murray Darling wine region of New South Wales, cover an area of approximately 1,070 hectares. Australian winemaker Casella Family Brands has recently acquired South Australia’s Howcroft Estate Vineyards for a reported sale price of over A$9 million. The sale of Howcroft Estate Vineyards is understood to have included 412 hectares of planted vines and a grape supply agreement with one of Australia’s largest vineyard owners, Australian Vintage Limited. The acquisition follows Casella Family Brands’ recent acquisition of Brand’s Laira from New South Wales winemaker McWilliam’s Wines. Casella Family Brands owns one of Australia’s most recognised wine brands, Yellow Tail, and annually exports approximately 12.5 million cases of wine to more than 50 countries worldwide.
MARKET RUMOURS AND OPPORTUNITIES Further to the report in our second edition, privately owned Australian beef producer S Kidman & Co is still in negotiations with prospective investors to sell its beef producing business. S Kidman & Co is Australia’s largest private landowner, owning land equivalent to approximately 1.3% of Australia’s total land area. It is rumoured that Hong Kong-based investment company Genius Link Asset Management (GLAM) has offered more than A$370 million for Kidman’s expansive cattle portfolio. The offer made by GLAM exceeds an earlier offer made by Chinese conglomerate Shanghai Pengxin Group, which is understood to have bid A$350 million for the pastoral business. The sale of Kidman faced significant pressure last year when Commonwealth Treasurer Scott Morrison declared the sale of Kidman to an unnamed foreign bidder contrary to Australia’s national interest given the size of Kidman’s land holdings and the fact that more than half of Kidman’s largest cattle station, Anna Creek, is located in the Woomera Prohibited Area on defence land in South Australia. It is understood that Anna Creek will now be carved out of any proposed sale to satisfy foreign investment review board (FIRB) concerns around national security. GLAM, along with Shanghai Pengxin Group and a Canadian teacher’s pension fund, has reportedly applied for FIRB approval for the purchase
of Kidman. This approval process has opened a two-month window for domestic companies to consider bids for the company; an opportunity reported to have also been considered by a Linfox company and a major Australian livestock operator. In addition to its rumoured interest in S Kidman & Co, GLAM is reportedly interested in potential investment opportunities in Australia’s agribusiness sector, including dairy and consumer-focused businesses, and is rumoured to be in discussions with Australian beef producer Consolidated Pastoral Company and beef company Australian Agricultural Company. GLAM’s founder, Joel Chang, reportedly said GLAM is ready to invest A$1 billion in agribusiness acquisitions over the next three years, noting Australia’s reputation for food quality across the value chain as a motivating factor for the investment company. Mr Chang has reportedly said that the company has been encouraged by the recent China-Australia Free Trade Agreement, which will allow GLAM to position itself to take advantage of China’s projected cattle shortage of 1.4 million head of cattle. GLAM already has a number of agribusiness investments in Australia, including oilseed producer Riverina Oils & Bio Energy and Australia’s largest table olive plantation, TreeTops Plantation, which cultivates 120,000 olive trees across 500 hectares in New South Wales.
Australia’s reputation for food quality across the value chain is a motivating factor for the investment company
MARKET RUMOURS AND OPPORTUNITIES The demise of the policy is expected to extend longterm demand for infant formula in the Chinese market, which is estimated to be worth more than A$20 billion annually
Australian property investment firm DomaCom is no longer looking to submit a counter-offer for S Kidman & Co after failing to raise enough capital. Having raised crowd-funded capital of only A$58 million, a recent report in the Australian Financial Review says that the company has directed its focus towards acquiring multiple property assets in the agriculture sector. It is looking to acquire beef-cattle properties, dairies and sheep-grazing property across New South Wales, Victoria and Queensland. According to DomaCom’s founder, Arthur Naoumidis, the company is evaluating five acquisition opportunities and is already in advanced talks with several vendors. DomaCom is thought to be arranging a listing on the ASX in the third quarter of 2016, having completed a pre-IPO capital raising of approximately A$8 million earlier this year. While the AGC consortium’s proposed takeover of CBH was rejected by the CBH board, The Australian reports that the move has triggered other large agricultural players such as Archer Daniels Midland, US-based grain distributor Cargill and global food production company Bunge to consider counter-proposals to buy the West Australian grain co-operative. Unlisted investment company Aerem is reportedly seeking to raise A$250 million to acquire dairy assets in south-west Victoria and to partner with a major industry player to build an infant formula factory. Aerem’s proposed acquisition strategy, which is understood to be driven by strong Chinese demand for Australian infant formula, follows China’s announcement that its one-child policy will be abolished. The demise of the policy is expected to extend long-term demand for infant formula in the Chinese market, which is estimated to be worth more than A$20 billion annually. Aerem was previously rumoured to be planning a much larger A$750 million raising to acquire the prospective dairy assets and construct the infant formula
factory itself, a plan which is believed to have been scaled back following recent volatility in global dairy pricing and financial markets. Australian fruit processor and beverage manufacturer Australian Pure Fruits is rumoured to be considering joint venture opportunities with potential partners to gain access to overseas markets. The South Australian company, which is thought to have received interest from organisations located primarily in Asia, is interested in exploring opportunities with manufacturers located in China, Hong Kong and the Philippines that operate distribution networks which could be used by Australian Pure Fruits. Australian Pure Fruits operates three facilities in Australia and has strong existing relationships with major Australian supermarkets. DTS Food Laboratories is rumoured to be holding talks with New Zealandowned food safety and biosecurity services company AsureQuality about a potential buyout. AsureQuality is a state-owned enterprise wholly owned by the New Zealand Government and is one of DTS Food Laboratories’ major shareholders along with multinational dairy co-operative Fonterra, Victoria’s Murray Goulburn Co-operative and Warrnambool Cheese and Butter Factory. It is rumoured the potential transaction could value the Victoria-based food and beverage testing company between A$80 million and A$100 million. DTS Food Laboratories has a strong presence in the dairy sector and provides a range of analytical and testing services to some of Australia’s largest food and beverage companies. On 23 February 2016, Commonwealth Treasurer Scott Morrison announced the approval of Moon Lake Investments’ proposed acquisition of Tasmania’s Van Diemen’s Land Company. The Van Diemen’s Land Company is owned by New Zealand’s New Plymouth District Council and runs approximately 30,000 head of dairy stock across 25 dairy farms in north-west Tasmania.
Moon Lake Investments, a solelyowned investment vehicle of Chinese entrepreneur Lu Xianfeng, is understood to have made a A$280 million binding offer to acquire the Tasmanian dairy company last year. According to the Treasurer’s announcement, approval of the acquisition by the FIRB is conditional upon Moon Lake Investments’ compliance with Australian Taxation Office (ATO) directions to provide information in relation to the investment and to advise the ATO if it enters into any transactions with non-residents to which transfer pricing or anti-avoidance measures may potentially apply. It was reported earlier this year that businesswoman Jan Cameron had planned to underwrite a rival bid for the Van Diemen’s Land Company, joining with unnamed consortium partners to challenge Moon Lake Investments’ bid. As reported in our second edition, ASX-listed TasFoods Limited had previously undertaken due diligence on its possible acquisition of the company. ASX-listed Mareterram Limited is reportedly considering the acquisition of land and sea-based agribusiness assets over the next 24 months in a bid to further expand its presence in the agribusiness sector. The West Australian-based company, which specialises in commercial fishing and food distribution operations, recently announced that it has executed a binding agreement to purchase the net assets of Australia-based Focus Fisheries Pty Ltd, a provider of
contract marketing and sales services in export and domestic seafood markets. The binding agreement follows the company’s acquisition last year of Norwest Seafoods for A$20 million and the food service division of the Craig Mostyn Group for A$7 million. According to Mareterram’s Managing Director, David Lock, the company intends to acquire Australian targets offering supply chain control and vertical integration opportunities. According to a recent report in the Australian Financial Review, Geoff Rendell and Spencer Rendell, owners of Victoria-based Rendell Dairies, are reportedly selling their 1,263 hectare dairy farm. The dairy enterprise, which consists of three properties in Victoria’s Goulburn Valley, has the capacity to milk up to 1,800 cows and includes two dairies and several dwellings. The dairy enterprise is expected to attract strong interest from domestic and international buyers and has market expectations of around A$10 million. Privately held Australian company MainStream Aquaculture is reportedly interested in acquiring both domestic and offshore assets to expand its barramundi harvesting and export business. MainStream Aquaculture’s Managing Director, Boris Musa, reportedly said the company is looking for established targets that could provide the company with access to large production facilities. According to recent reports, the company is also pursuing growth opportunities
through joint venture arrangements. MainStream Aquaculture has an existing joint venture agreement with a Singapore-based entity and is reportedly considering further joint venture arrangements in the Middle East – one of its key export markets. The company, which was founded in 2001, is one of Australia’s top five domestic providers of barramundi and exports product to over 20 countries across South East Asia, the Middle East and North America. Australian beef producer Western Grazing Company has reportedly shortlisted 11 bidders for the sale of two of its largest grazing properties. The proposed sale comes at a time of strong interest in Australian cattle property and follows last year’s acquisition of the Hunter Valley’s Glenrock Station by Chinese retail conglomerate Dashang Group and the acquisition of Wollogorang Station and Wentworth Ranch by Chinese ball bearing manufacturer Zhejiang Tianma Bearing Group Co. The sale of the Western Grazing Company properties is expected to exceed A$100 million and comprises land with a carrying capacity of around 65,000 head of cattle. Western Grazing Company is owned by the Oxenford family and is one of Australia’s largest beef producers, managing eight cattle properties across Queensland and the Northern Territory. The sale is being managed by Bentleys International Advisory and is expected to complete in May 2016.
REGULATORY UPDATES In 2014-2015, agricultural trade between Australia and China was worth A$12 billion
Funding for Australian businesses under the Australia-China Agriculture Cooperation Agreement Funding will now be available to Australian farm businesses and organisations to develop projects and undertake trade missions to strengthen the agricultural trading relationship between Australia and China. According to a recent statement released by the Minister for Agriculture and Water Resources, Barnaby Joyce, the Australian Government will make A$384,000 in funding available under the Australia-China Agricultural Cooperation Agreement (ACACA) over the next two years. ACACA is a treaty level agreement between the Australian and Chinese governments designed to further develop the Australia-China trading relationship. According to Minister Joyce, two streams of funding will be available “covering projects and trade missions in priority areas including science and technology cooperation, sustainable agricultural technology, food safety, animal husbandry and exploration of niche markets”. In 2014-2015, agricultural trade between Australia and China was worth A$12 billion.
Signing of Trans-Pacific Partnership On 4 February 2016, the TransPacific Partnership (TPP) was signed by Special Envoy for Trade, Andrew Robb. The TPP is a regional trade agreement designed to promote economic growth and job creation, and its signatory countries include Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the United States and Vietnam, which collectively represent close to a third of Australia’s total exports and five of Australia’s top 10 trading partners. Once in force, the TPP is expected to result in tariffs being eliminated on US$9 billion
of Australia’s dutiable exports to TPP signatory countries, including US$4.3 billion worth of agricultural goods with new levels of access for beef, dairy, sugar, rice, grains and wine. According to a recent statement released by Minister Robb, tariff cuts under the TPP are set to “deliver material gains for Australia’s exporters across the board and place downward pressure on the cost of imported goods for households and businesses”. The TPP will need to be formally ratified by each signatory nation before it can enter into force. The signing of the TPP follows the Australian Government’s recent appointment of five new overseas agriculture counsellors in Vietnam, Malaysia, Saudi Arabia, China and Thailand. The appointment of the counsellors, who assist Australian producers to gain access to premium and emerging overseas markets, will complement Australia’s existing overseas network which is already operational in Tokyo, Beijing, Jakarta, Seoul, New Delhi, Washington, Rome, Brussels and Dubai. As reported in our second edition, the appointment of the agricultural counsellors represents a A$30.8 million commitment under the Australian Government’s Agricultural Competitiveness White Paper.
Recent changes to Australia’s foreign investment regime As foreshadowed in our first edition (available here), changes to Australia’s foreign investment legislation came into force on 1 December 2015. Under the new regime, foreign investment approval will be required for the acquisition of any agricultural land by foreign persons and their associates who collectively hold more than A$15 million of agricultural land, or where the proposed acquisition will take such holding above A$15 million.
Consistent with the previous Australian Government policy (which has now become law), foreign government investors will still be required to obtain FIRB approval to acquire any interest in land, including agricultural land, regardless of value. The definition of ‘agricultural land’ has also been broadened to include not only land that is wholly and exclusively used for a primary production business, but also land that is used, or that could reasonably be used, for a primary production business (eg vacant land zoned for agricultural activities). FIRB approval is also required for foreign acquisitions of direct interests in an agribusiness where the total value of the foreign person’s investment (rather than the value of the underlying business) exceeds A$55 million. “Direct interests” are generally 10% but can be lower where other rights are acquired as part of the transaction
such as a director appointment right or a separate commercial arrangement with the target business. Agribusiness is defined broadly under the new regime, capturing primary production businesses and certain first stage downstream manufacturing businesses (including meat, poultry, seafood, dairy, fruit and vegetable processing and sugar, grain and oil and fat manufacturing and entities which own such businesses). Although there is a higher notification threshold of A$1,094 million for certain investors from Australia’s trade agreement partners (currently limited to Chile, New Zealand and the United States) who invest directly from their home jurisdiction, in practice this higher threshold does not apply as investors invariably invest through an Australian subsidiary or through a subsidiary incorporated outside the relevant home jurisdiction.
Foreign government investors will still be required to obtain FIRB approval to acquire any interest in land, including agricultural land, regardless of value
REGULATORY UPDATES Foreign investors should also be aware that from 1 December 2015 applicants seeking FIRB approval will now be required to pay a fee before their foreign investment application is processed. The fees applicable to investments in agricultural land and agribusinesses are outlined below:
Acquisition type
Fee payable
Australian Agricultural Land An interest in agricultural land valued at $1 million or less ($0 - $1,000,000)
$5,000
An interest in agricultural land valued at over $1 million and under $2 million ($1,000,001 - $1,999,999)
$10,000
An interest in agricultural land valued at $2 million or more but under $3 million ($2,000,000 - $2,999,999)
$20,000
An interest in agricultural land – further $1 million increments
$10,000 per $1 million up to a maximum fee of $100,000.
Australian Business A direct interest in an Australian agribusiness
If multiple fees apply to one acquisition (eg acquiring a direct interest in an agribusiness that holds agricultural land), only the highest of those fees will be payable – it is not necessary to pay multiple fees.1 As part of the recent changes, the ATO will maintain an agricultural land register to keep track of foreign holdings in Australian agricultural land covering all freehold interests, and leasehold interests likely to exceed five years. All foreign persons currently holding or who subsequently acquire such an interest in agricultural land (regardless of whether FIRB approval is required) must notify the ATO through an online portal on the ATO website within 30 days of the
acquisition completing or the lease commencing (existing holdings were required to be notified by 29 February 2016). Subsequent changes also need to be notified to the ATO (eg ceasing to hold the interest, the holder ceasing to be a foreign person or the land ceasing to be agricultural land). There are no fees associated with entries on the agricultural land register.
ACCC launches new Agriculture Enforcement and Engagement Unit A dedicated Agriculture Commissioner has recently been appointed to the Australian Competition and Consumer Commission (ACCC). The new Commissioner, Mick Keogh, will
Valued at $1 billion or less - $25,000, otherwise - $100,000.
work closely with a dedicated Agriculture Enforcement and Engagement Unit. The Unit will focus on agricultural supply chains, aiming to identify anti-competitive conduct, unfair trading and engaging with regional Australia. The Unit’s activities will include market studies into commercial pressures in the industry. Its work will complement the ACCC’s existing work with regulating water and wheat ports, administering the Horticulture Code of Conduct, and assessing mergers and collective bargaining arrangements.
1. This does not include the acquisition of interests in residential land where a separate fee is payable for each title acquired.
OUTLOOK As evidenced by the length of this edition, there has been plenty of activity in Australian agriculture over the last quarter, headlined by the ongoing sale process for S Kidman & Co (Australia’s largest landowner) and the Treasurer’s recent approval of the acquisition of the Van Diemen’s Land Company. The competition for S Kidman & Co’s assets provides a poignant lesson for foreign investors seeking to acquire significant agricultural assets in Australia – make sure you have a comprehensive strategy to manage the FIRB approval process, including structuring your investment in a way that will make it more palatable to FIRB and the Treasurer (eg by having an Australian joint venture partner and/or leaving control of the underlying assets in Australian hands).
While beef and dairy continue to dominate the headlines in attracting interest from foreign buyers, at the same time we are seeing smaller meat processors struggling to remain competitive with the increase in live exports and a reduction in the size of the national beef cattle herd. We expect to see further consolidation in this sector and/or ambitious investors using acquisitions to take advantage of vertical integration opportunities. With the Minister for Agriculture and Water Resources, Barnaby Joyce, recently promoted to the position of Deputy Prime Minister, agriculture will continue to be a key policy area for the Australian Government. We expect more initiatives emanating from the White Paper on Developing Northern Australia and the Agricultural Competitiveness White Paper (both covered in our second edition) to be announced this year in the lead up to the next Federal Election which is due in 2016.
We expect more initiatives emanating from the White Paper on Developing Northern Australia and the Agricultural Competitiveness White Paper
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