Asia Focus Update August 2018

NEW ZEALAND - GENERAL BUSINESS UPDATE The new coalition government has been in power for almost one year since the 2017 General Election and has progressed a number of its initiatives to date. Announcements were made as part of its electoral campaign to assess regulatory settings in a number of industries and, where necessary, propose and implement amendments to existing frameworks. To date we have seen proposals in a broad range of areas including in-bound investment regulation, the dairy industry, oil and gas, and infrastructure. We are also seeing a tightening of credit conditions and rising global interest rates, which will inevitably put pressure on the economy and businesses. Following the announcement of major losses by public company , we are beginning to see an impact on the domestic share market. Despite these economic developments, business confidence remains relatively stable. In the coming year, we expect M&A activity to remain fairly buoyant, particularly in the private M&A and joint venture areas where we are seeing strong activity. With one initial public offering in 2017, we do not expect to see any major uptick in the NZ equity capital markets this year. Based on the new government’s agenda we expect to see an increase of development projects in the residential property sector being approved by the Overseas Investment Office. Robert McLean DDI: +64-9-977 5077 Mobile: +64-21 987 050 Please let us know if you or any of your clients are [email protected] interested in discussing any of the topics covered in this newsletter, or have any other enquiries about undertaking business in New Zealand. You can contact Victoria Anderson us at [email protected] or feel free to DDI: +64-9-977 5188 contact any of the persons identified right. Mobile: +64-21 923 037 [email protected]

Asia Focus Newsletter | 1 THE MARKETS the collapse of Ebert Construction to have downstream • Residential Property Market: New Zealand’s effects, including gaps in the market for expertise on residential property market continues to stabilise. QV dairy processing factories. It has been reported that data shows that the average value of all residential a new Synlait Milk project will suffer significant delays properties throughout the country declined for the as a result. We were also starting to see construction third consecutive month in July 2018. Despite this, industry participants go into receivership. the decrease in the average national house price was • Dairy Prices: Dairy prices have declined at the Global small, and the national average is still 5.1% higher than Dairy Trade (GDT) auction for a sixth consecutive it was in July 2017. The increase in national averages is time. The GDT price index declined 3.6% at the last driven by a strong increase in the regions (particularly auction on 17 July, with a cumulative decline of 12.8% Whangarei, Taupo, Rotorua, Palmerston North, Kapiti since mid-May 2018. This is largely due to production Coast, Wellington, Dunedin and the Hawkes Bay) volumes increasing more than expected, and ’s compared to only 0.5% increase in Auckland. Given that latest production update reported 1.3% more milk the OCR remains at 1.75 since November 2016, with no production in the 2018/2019 season. Furthermore, expectation of changes in the foreseeable future until countries such as Australia, US and the European Union at least third quarter 2019, it is likely the residential have recently seen an increase in production, which property market will remain stable across most of New is also attributed to the decline in the GDT. This has Zealand for the rest of the year. been further heightened by pressures on global trade • New Zealand Dollar: In April, the New Zealand Dollar from the US-China trade tensions. In May, Fonterra stabilised after the post-election announcement, announced a strong opening forecast farmgate milk back to its pre-election results level of USD 73 cents price of $7kg of milk solids for 2018/2019. However, per NZD. However, following the China and US global Fonterra reduced last season’s farmgate milk price trade tensions and a flat OCR, the New Zealand Dollar to $6.70 per kilogram of milksolids, after placing its has continued to weaken against the USD and as at shares in a trading halt on 9 August. It also slashed its 29 August, is trading at USD 67 cents. The global full year dividend expectation with no further dividend trade tensions have had a relatively greater impact on expected in addition to the 10 cents per share paid in small, open economies such as New Zealand. The New April (down from the previous forecast of 15-20 cents Zealand dollar has remained quite stable against the per share). Fonterra’s board is currently searching for a AUD and Euro in the last quarter, trading at around AUD new CEO but have appointed Fonterra’s existing COO, 91 cents and Euro 57 cents respectively. Miles Hurrell, to act as interim CEO. • Share Performance: The decline in the US stock INDUSTRY-SPECIFIC UPDATE market in early February sparked a global slide of stock Agribusiness markets, with the S&P/NZX50 falling in the last quarter from its highest of 8,442 to current level of 8,117 • Dairy Industry Regulatory Review: The New (around 3.85% decrease). This drop came following a Zealand dairy industry is regulated by the Dairy long period of steady growth for the US stock market Industry Restructuring Act 2001 (DIRA) and the Dairy and other global stock markets, and an increase in Industry Restructuring (Raw Milk) Regulations 2012 US bond yields. For the NZ stock market, total trades (Regulations). The DIRA and the Regulations were jumped 70% to 258,063 in July (total value traded initially introduced to provide for a pro-competition increasing 3.7%) and S&P/NZX 50 index hit a record framework in which the activities of Fonterra (the high, closing above 9,000. This is believed to be as a largest diversified milk processing company) were to result of China/US trade tensions causing an increase be regulated to ensure contestability of dairy products to investors’ risk appetites. However, the NZX is still and services. Given the market share held by Fonterra, struggling to attract new listings, despite its strategy the Regulations in particular are targeted at providing a to revive investor interest. Pushpay, Fletcher Building pathway for independent processors into the raw milk and Metro Performance Glass shares all experienced market. While the DIRA and the Regulations do not significant drops over the last quarter. A2 Milk shares directly regulate pricing, the intention is to create an have increased 120% over the last year but have slowly environment within which Fonterra is incentivised to been declining since their high in March 2018. Fisher set the raw milk price efficiently. & Paykel Healthcare, Trademe, and • The DIRA and Regulations were intended to be in SkyCity Entertainment have been strong performers. place until such time as the dairy markets have • Ebert Construction: Major construction contractor, become sufficiently competitive. Since the DIRA and Ebert Construction has gone into receivership following the Regulations were brought into effect, the New poor performance on its major contracts. We expect Zealand dairy markets have developed significantly.

Asia Focus Newsletter | 2 In December 2017, the Government announced its cattle. It is still unclear whether Mycoplasma Bovis intention to carry out a comprehensive review of may cause a future reduction in dairy and meat export the DIRA. The Government has now released its demand. terms of reference paper in which it has said that it will look at open entry and exit for farmers, the raw The other potential cost and uncertainty is the impact milk price setting process, contestability for milk, the on the value of farms affected by the disease. Farm risks and costs for the sector, and the incentives or sales dropped by 11 percent in the 3 months to March disincentives for dairy to move to sustainable, higher- 2018 compared to the same quarter last year. It is value production and processing. Given the nature of also impacting the sale of uninfected farms that are in the review, we expect that, while it may take some time close proximity to infected farms. The median price per to develop, there are likely to be opportunities for new hectare decreased 8.9 per cent over the past 12 months entrants into the New Zealand dairy market.around to March 2018 for dairy farm sales, but only fell 0.3 per $150,000 to $200,000 worth of stolen beehives and cent across all farm sales. beekeeping equipment following a spate of robberies • Acquisition of PGG Wrightson’s seed and grain business: in the Bay of Plenty during 2017. Nineteen hives and Simpson Grierson (led by Partner Simon Vannini) around 500,000 bees were also stolen from a Hawke’s acted for Danish cooperative DLF Seeds in its recently Bay honey company in September 2017. Demand for announced purchase of PGG Wrightson’s seed and Manuka honey is thought to be driving the crime as it grain business for $421 million. This sale allows DLF, as is now one of New Zealand’s most expensive exports, the world’s leading cool season clover and grass seed with honey companies and beekeepers responding company, to strengthen its global customer offering via by investing into more advanced security systems. access to the leading temperate forage seed operation These solutions include fitting hives with a tracking in the Southern Hemisphere. The deal also includes system that sends updates on hive movements directly a long-term distribution agreement and the right for to beekeepers, and the installation of electronic the seed and grain business to continue using the PGG surveillance cameras. Wrightson name and brands. The sale is subject to the • Mycoplasma Bovis Update: Mycoplasma Bovis, a approval of PGG Wrightson shareholders, as well as cattle disease that causes illness including mastitis, regulatory approvals. abortion, pneumonia, and arthritis, has continued to Mining and Exploration spread around the country after first being reported in July 2017. The illness is hard to detect, as there are • Oil and gas exploration and prospecting: In April 2018, usually no visible signs, and it is also hard to treat once the new government announced its intention to reduce an animal is infected. The number of cattle infected (and in particular areas bring to an end) exploration has continued to increase since the first infection was and prospecting of oil and gas projects as part of its reported but, fortunately, 99% of dairy herds in New focus to take steps to address climate change and Zealand still have no signs of infection. create a clean, green and sustainable future for New Zealand. Despite this announcement, the government The Government has since been trying to eradicate has said that it will protect existing exploration and the disease from New Zealand, by culling 126,000 mining rights. cattle on top of the 26,000 already culled. The cost of • Zero Carbon Bill: In addition to the government’s eradication has been estimated at $886 million over 10 announcements relating to exploration and prospecting years. Further to the cost of eradication, there are other permits, the government has also taken steps to significant costs for farmers, businesses and the wider progress carbon emission reduction targets by inviting community. While farmers will qualify for compensation submissions on the proposed Zero Carbon Bill. As for culled cattle, there is uncertainty around how long part of the submissions process, the government has this process will take and how much they will be eligible sought suggestions and feedback on matters relating to receive. Furthermore, many impacted farmers will to policy and structure on the legislative regime. While have lost many years’ work improving breeding stock there is very little in the way of papers setting out the and will have to go through the stress of building up government’s thinking, publicly available information their cattle or, if their cashflow does not allow, selling suggests that the target outcome is a long term what is left of their businesses. transition towards a zero emissions economy by 2050.

With respect to dairy and meat prices, while the meat • OMV acquisition of Shell: Simpson Grierson (led by and milk from infected animals is safe for human Partner Dave Trueman) advised OMV on its US$578 consumption, the industry is concerned that there is million acquisition of Shell’s upstream oil and gas still stigma associated with meat and milk from infected business in New Zealand. OMV, which operates both

Asia Focus Newsletter | 3 upstream and downstream oil and gas businesses • provide information about their beneficial owners to around the world, has agreed to buy Shell’s upstream the Registrar of Companies; and business in New Zealand including a 48% interest in • make the information about their beneficial owners Pohokura, the largest gas-producing field in the country, publicly available on the relevant register. and an 83.75% interest in the Maui gas field. Recent M&A Activity OVERSEAS INVESTMENT UPDATE • Acquisition of PGG Wrightson’s seed and grain Decisions of Note (January to July 2018) to date as noted above, the sale of PGG business: • Lee Bell, Inc.: United States Investment in significant Wrightson’s seed and grain business to Danish business assets, being the applicant’s acquisition via cooperative DLF Seeds for $421 million is one of the its subsidiary, VF Corporation, of rights or interests in biggest deals this year. 100% of the shares in Icebreaker Holdings Limited for • OMV acquisition of Shell: as noted above, OMV’s consideration of $288 million. The Applicant is a United US$578 million acquisition of Shell’s upstream oil and States-based global apparel, footwear, and accessory gas business in New Zealand is another significant deal business that operates in, and distributes to, more this year. than 170 countries. OIO approved the application on the basis that the individuals who will control the Private equity houses, locally • Capital Deployment: investment have the relevant business experience and in the New Zealand and Australian markets have acumen and are of good character and the applicant completed significant fund raising campaigns in the last also demonstrated financial commitment to the year, and as a result have cash available for deployment. investment. Simpson Grierson acted for VF Corporation Funds with large pools of capital available for investment in this acquisition. continue to have strong interest in quality assets, including the New Zealand Super Fund which continues • CITIC Capital China Partners III, L.P and TIL NZ Rose to receive additional contribution from the government Investment Limited: Partial Canadian and Chinese and Pencarrow Private Equity. investment in significant business assets, being the applicant’s acquisition of rights or interests in 100%

• Pacific Equity Partners Sale of Manuka Health: of the shares of Trilogy International Limited for Sydney private equity house, Pacific Equity Partners, consideration of approximately $203 million. The are rumoured to have sale processes underway for a applicant provides investment vehicles for a number proposed sale of Manuka Health. Pacific Equity Partners of sovereign investment funds, pension plan funds and acquired Manuka Health in December 2015. Market institutional investors. OIO approved the application reports suggest that bids for Manuka Honey are being on the basis that the individuals who will control the made by Beijing-based private equity investor CDH investment have the relevant business experience and Investments, and Ng Fung Ltd, the largest shareholder in acumen and are of good character and the applicant New Zealand based Manuka honey producer Comvita. also demonstrated financial commitment to the • New Zealand Super Fund agriculture investment: The investment. New Zealand Super Fund has increased its investment in • Horizon Oil International Limited: Partial Australian the agriculture sector by investing in international fresh and Thai investment in significant business assets, being fruit and vegetable grower and marketer, NZ Gourmet. an additional 16% interest in the Maari joint venture The Fund has acquired a 27% stake in the company for operation agreement for petroleum permits for the an undisclosed sum. Maari and Manaia fields, a 16% beneficial interest in Corporate Law Developments the Maari joint venture assets and proprietary rights in technical information relating to Petroleum Mining • The Ministry of Business, Innovation and Employment Permit 38160 for an aggregate consideration of $150 (MBIE) has announced its intention to conduct a review million. OIO approved the application on the basis that of the current requirements for companies and limited the individuals who will control the investment have partnerships to disclose information regarding beneficial the relevant business experience and acumen and are ownership. Based on the information publicly available, of good character and the applicant also demonstrated it is apparent that MBIE is looking to strengthen the financial commitment to the investment. integrity of New Zealand business vehicles by reducing the incidence of criminal use of corporate entities. The • Datamars SA: Partial Canadian and United States review is in its early stages, but MBIE has stated that it will investment in significant business assets, being the look to require companies and limited partnerships to: applicant’s acquisition of rights or interests in 100% of the shares in Simcro Holdings Limited, the consideration • hold up-to-date information about their beneficial of which exceeds $100m. The applicant is a company owners; registered in Switzerland that specialises in radio

Asia Focus Newsletter | 4 frequency identification and has markets in companion applicant’s acquisition of a leasehold interest in 1.3492 animal ID, livestock ID and textile ID products. OIO hectares of land at 32-48 Hamilton Road, Queenstown. approved the application on the basis that the OIO approved the application on the basis that individuals who will control the investment have the the applicant has a history of other investments in relevant business experience and acumen and are of New Zealand and has proposed to inject capital and good character and the applicant also demonstrated resources into developing the productive capacity and financial commitment to the investment. services provided by the Pinewood Lodge business operated on the land. • Adamantem Capital Management Pty Limited: Partial Australian and Cayman investment in sensitive land • New Zealand Window Shades Limited: Partial Dutch and significant business assets, being acquisition of investment in sensitive land, being the applicant’s up to 100% of the shares in Vintage Holdco Limited. acquisition of a freehold interest in 1.9461 hectares OIO approved the application on the basis that the of land at 15 Lady Ruby Drive, East Tamaki, Auckland. investment is likely to result in the introduction of The applicant acquired the land for use as warehouse, capital into New Zealand and enhance the viability and manufacturing and office space in February 2012 and development of the existing Heritage Lifecare portfolio has sought retrospective consent. OIO approved the through allowing more efficient introduction of capital. application on the basis that the investment enabled the applicant to improve lead times and likely to result • Eclipx Fleet Holding (NZ) Limited: Australian in the applicant moving manufacturing of some window investment in significant business assets, being the coverings products to New Zealand. The applicant’s application’s acquisition of property in New Zealand previous investments in New Zealand also resulted in used in carrying on business in New Zealand, that benefits to New Zealand. property being various vehicle lease receivables and related vehicle assets, which, over time, may result in • Craigmore Permanent Crop Limited Partnership over $100 million of receivables. OIO approved the (CPCLP): CPCLP (majority owned by United Kingdom, application on the basis that the individuals who will Hong Kong and Germany) sought consent to acquire control the investment have the relevant business an operational green kiwifruit (5.96 ha) (Hayward) and experience and acumen and are of good character and avocado (2.04ha) orchard in Te Puke. A key feature of the applicant also demonstrated financial commitment the CPCLP’s investment plan is to convert all kiwifruit on to the investment. the Land to organic production for supply to Zespri. OIO denied the application on the basis that having regard • Yangpu Kelei Teer Investment Co., Limited: Yangpu to the new rural land directive, the overseas investment Kelei Teer previously acquired 20% of the shares in was likely to benefit New Zealand but that the benefit Changda International Investment Holding Co., Limited. was not substantial and identifiable within the context This was an application by Yangpu Kelei Teer to acquire of the investment. an additional 29% of the shares in Changda, which owns a freehold interest in 40.7259 hectares of land at 207 • Limited: Metlifecare Limited is majority West Hoe Heights, Orewa, Auckland. OIO approved the New Zealand owned, but a minority shareholding is held application on the basis that the investment is likely to by Australia, United States, United Kingdom and other enhance the on-going viability of the residential housing countries. Metlifecare Limited develops, owns and development by Changda in the Auckland region. operates retirement villages and aged care hospitals in New Zealand. The OIO approved its application to • Volution Group plc.: Partial United Kingdom and United acquire sensitive land, being approximately 5.6 hectares States investment in sensitive land, being the applicant’s land at Scott Point, Hobsonville, to develop a retirement acquisition via its subsidiary, Chinook Limited, of 100% villages and ages care hospital. Simpson Grierson acted of the issued share capital in Simx Limited which will for Metlifecare Limited in the acquisition. result in an overseas investment in sensitive land, as Simx owns a leasehold interest in 1.3048 hectares • Waste Management NZ Limited (WMNZL): WMNZL of land at 1 Haliday Place, East Tamaki, Auckland. (jointly owned by the Chinese government and China OIO approved the application on the basis that the public) is one of New Zealand’s leading recycling investment will result in the applicant establishing its and waste service companies, servicing industrial, geographical presence in New Zealand, further grow its government, and commercial customers, and seeks to ventilation business in the Australasia region, and will consolidate its operations in Auckland to one location result in the creation of jobs and introduction of new to enable it to develop its business. Its application ventilation products to New Zealand. to acquire sensitive land, a leasehold interest in 5.2452 hectares of land at East Tamaki, Auckland for • Delaware North Companies (NZ) Retail Services: consideration estimated to be $362,767,007 over United States investment in sensitive land, being the the term of the leasehold interest, was granted. Prior

Asia Focus Newsletter | 5 to the lease commencing and in order to secure the tenancy, Stride Property Limited will undertake a multi- million dollar investment in the demolition, design, and construction work to ready the land for the WMNZL over two years. • Mohawk Industries Inc: Consent was granted for Mohawk Industries Inc to acquire 100% of the shares of Godfrey Hirst Australia Pty Ltd, which owns a freehold interest in sensitive land in Oamaru upon which a wool spinning facility is located. Mohawk Industries Inc is a worldwide flooring company incorporated in the United States and the acquisition is part of a large international transaction relating to assets in Australia, New Zealand and North America. In addition to maintaining business as usual operations, it intends to source wool yarn from the Investment for export to its overseas production facilities, and increase exports of wool carpets to the United States market. The OIO found that the benefits likely to result from this Investment are associated with an increase in production, including additional jobs being created, increased processing of wool in New Zealand and increased export receipts. Simpson Grierson acted for Mohawk Industries Inc in this acquisition.

A SIMPSON GRIERSON PUBLICATION This newsletter is produced by Simpson Grierson. It is intended to provide general information in summary form. The contents do not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters. © Copyright Simpson Grierson 2018. AUCKLAND: Level 27, Lumley Centre, 88 Shortland Street, Private Bag 92518, Auckland 1141, New Zealand WELLINGTON: Level 24, HSBC Tower, 195 Lambton Quay, PO Box 2402, Wellington 6140, New Zealand CHRISTCHURCH: Level 1, 151 Cambridge Terrace, West End, PO Box 874, Christchurch 8140, New Zealand

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