Natural Dairy buys four farms, eyes more in NZ plan

Bloomberg | 24 March 2010

Natural Dairy Buys Four Farms, Eyes More in N.Z. Plan

By Gavin Evans

March 24 (Bloomberg) — Natural Dairy (NZ) Holdings Ltd., formerly a Hong Kong-based engineering company, agreed to buy four farms in New Zealand and is in talks for 24 more as part of a NZ$1.5 billion ($1.1 billion) expansion in the world’s biggest dairy exporter.

UBNZ Asset Holdings Ltd., a New Zealand group that’s 20 percent-owned by Natural Dairy, will fund the deal that is subject to regulatory approval. The company has held talks to buy milk processing plants and may build its own, according to lawyer Kerry Knight, who represents Natural Dairy.

New Zealand accounts for about 40 percent of the global trade in butter, milk powder and cheese. The industry is dominated by Fonterra Cooperative Group, and global investors including Mitsui & Co. and Olam International Ltd. have bought stakes in rival processors the past two years to profit from rising Asian demand for dairy drinks, snacks and health foods.

The deal shows “the gate on the New Zealand-China free trade agreement swings both ways,” Lachlan MacKenzie, Federated Farmers’ Dairy Chairman, said in a statement. “Assuming all this comes to pass, Federated Farmers wishes to meet with Natural Dairy (NZ) Holdings Ltd. sooner rather than later to understand its strategic direction.”

China Trade

China is New Zealand’s third-largest export market. The free-trade deal agreed between the two in April 2008 will phase out China’s tariffs on New Zealand dairy products over 12 years.

If completed, Natural Dairy’s purchases will be the biggest foreign investment in New Zealand since the government blocked Canada Pension Plan Investment Board’s $1.4 billion bid for a stake in Auckland International Airport Ltd. in 2008.

“Milk fat solids and dairy-related products in New Zealand are in demand at all times,” Natural Dairy said in June when it announced its intention to invest there to broaden its income base. The transaction will be funded with cash and convertible bonds, the company said in a statement yesterday.

Natural Dairy changed its name from China Jin Hui Mining Corp. in December after conditionally agreeing to buy UBNZ Asset Holdings. The proposed purchase included 22 New Zealand dairy farms then valued at NZ$206.9 million, including properties previously owned by Crafar family interests.

Crafar Farms, New Zealand’s largest family owned dairy company, appointed outside managers in October. Talks to sell the assets are continuing, receiver KordaMentha partner Michael Stiassny said.

Transaction Scale

“No transaction has been done,” Stiassny said by phone from Auckland today. “There is no doubt we will continue to have talks with Mr. Knight.”

The proposed acquisition is worth more than seven times Natural Dairy’s market value. It reported a loss of HK$4.34 million ($559,000) with sales of HK$2.3 million for the six months ended September. It had cash and bank balances worth HK$12.1 million as of the end of September.

The company’s stock surged more than fivefold in the year to Feb. 11, the last day before trading was halted. New Zealand’s All Ordinaries Index of 110 stocks rose 4.9 percent in the same period.

Natural Dairy brought NZ$140 million into New Zealand for the deal, with another NZ$60 million due shortly, Knight, of law firm Knight Coldicutt, said in an e-mailed statement.

The purchase is subject to Overseas Investment Office approval, he said.

“The ball’s in the government court, assuming all this comes to pass,” McKenzie said. “We hear much of ‘reputation’ and ‘brand risk’ associated with agriculture and wonder what the government will make of this.”

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source: Bloomberg