UNINTENTIONALLY, NEW ZEALAND LAW IMPEDES SOME

C O N F I D E N T I A L SECTION 01 OF 02 WELLINGTON 000891

SIPDIS

STATE FOR EAP/ANP-DRICCI AND EB/TPP-ESAEGER
STATE PASS USTR-LCOEN
COMMERCE FOR ABENAISSA/4530/ITA/MAC/AP/OSAO

E.O. 12958: DECL: 11/15/2015
TAGS: EINV ECIN ECON NZ ETRC
SUBJECT: UNINTENTIONALLY, NEW ZEALAND LAW IMPEDES SOME
INVESTMENTS

REF: A. 04 WELLINGTON 686


B. 03 WELLINGTON 1247

(U) Classified by: Political-Economic Counselor Katherine B.
Hadda. Reasons: 1.4 (b) and (d).


1. (SBU) Summary: New Zealand legislation intended to tighten
the rules on foreign ownership of land is having the
unintended effect of restricting sales of businesses and
properties. U.S. sellers of two large investments in New
Zealand -- a poultry-farm company and a stake in a forestry
business -- recently have had to contend with a new rule
requiring that the government be offered a right of first
refusal to purchase riverbeds on properties offered for sale
to foreign interests. The requirement discriminates against
foreign investment by favoring a less complicated sale
involving a domestic investor. New Zealand government
officials want to change the law but believe the newly formed
weak coalition government, coupled with the public's
sensitivity over land ownership by foreigners, will not allow
them to do so. End summary.


2. (C) A last-minute addition to the Overseas Investment Act
2005 requires that sellers of land to foreigners offer any
riverbed or lakes on their property to the government first.
The act provides for a process for assigning value to the
riverbed or lake, and the Minister of Conservation then
recommends whether the government should buy it. The act
sets no deadline for the minister's decision. That, coupled
with the required land survey and evaluation of the value,
leaves a seller facing lengthy delays, according to Annelies
McClure (protect),manager of the Overseas Investment Office
(OIO). Her agency makes decisions on foreigners'
applications for substantial investments in New Zealand.


3. (C) The riverbed provision applies to waterways more than
three meters wide. It already has affected two large
investments since the act took effect in August.
International Paper of Stamford, Conn., in August sold its
50.5 percent stake in a New Zealand forest products company,
Carter Holt Harvey (CHH),to a New Zealand firm, Rank Group
Investments Limited. The price was NZ $2.50 per share, or a
total of NZ $1.6 billion (US $1.1 billion). After meeting
with OIO officials, International Paper's lawyers concluded
that surveying the rivers on the company's New Zealand
properties represented a formidable and time-consuming task.
Absent the riverbed provision, McClure believes the company
would have sought a foreign buyer and might have secured a
higher price.


4. (C) Meanwhile, HJ Heinz Co. of Pittsburgh, Penn., has been
trying to sell its New Zealand poultry subsidiary, Tegel
Foods, since May 2005. Tegel, which has suffered from lower
poultry prices, owns about 300 farms, including at least two
with riverbeds. In October, Heinz offered to sell the
riverbeds to the government. McClure said that the company
now fears a lengthy delay as it awaits the government's
decision, but that it may have little choice except to sell
to a foreign buyer. There are only two other large poultry
producers in the country, and if either one purchased Tegel,
it would run afoul of anti-monopoly laws.


5. (C) McClure said government officials fear the riverbed
provision will dampen foreign investment if potential
investors expect difficulties in the future selling their
property. She added that the provision, by making it tougher
to sell to foreigners, also might prevent New Zealanders from
getting the best price for sales of businesses involving
land. The consequences have been contrary to the new law's
intent, which was to arrest a slide in foreign investment as
well as to keep iconic sites and shoreline out of foreign
ownership.


6. (C) The government would like to fix the problem, McClure
said. But Minister for Land Information Pete Hodgson, who
has responsibility for the OIO, said the government probably
would not touch this issue for at least another year,
according to McClure. With a Labour-led government relying
on support from three minor parties, Hodgson said the
government would have to carefully pick its legislative
battles. Amending the Overseas Investment Act is unlikely to
be among them, especially since foreign ownership of land is
a highly contentious issue in New Zealand.


7. (U) For more than 30 years, the government has screened
certain types of foreign investment. The legislation enacted
in August 2005 reduced the scope of business deals requiring
government review but tightened the screening of land
purchases by foreigners (ref A). The OIO must give consent
to foreign investments that would control 25 percent or more
of businesses or property worth more than NZ $100 million.
Restrictions and approval requirements also apply to land,
whose sale must meet a national interest test. Under the new
rules, foreign purchasers of land may be required to provide
management proposals and to report regularly on their
compliance with the terms of the consent.


8. (C) The new law was a response to public concern about
foreigners buying so-called iconic sites and coastal
properties. The draft legislation initially required that
sellers offer any coastal land (or "foreshore") to the
government first. Lakes and riverbeds were added to that
provision after controversy arose over advertisements for an
American-owned fishing and hunting ranch that billed its
rivers as "private," McClure said.


9. (C) Comment: Neither Heinz nor International Paper has
approached the Embassy on this issue. The Embassy will
continue to monitor the law's effect on foreign investment
and, particularly, on U.S. investors.
McCormick