Deals and IPOs

Battle for Kidman cattle empire sparks calls for change in Australia's foreign investment laws


A fresh bidding war over Australia's biggest farm has reignited fears of anti-China sentiment and put pressure on Canberra to tidy up its foreign investment rules.

The Kidman cattle empire sits across four Australian states, is home to 10 ranches and accounts for 2.6 percent of the nation's total agricultural land. It is also one of the biggest beef producers in a country that's ranked among the world's largest exporters of the meat. The landholding has been on sale since June last year but the government has blocked offers from Chinese buyers on the back of national interest and security concerns.

The fragile 'Painted Hills', a rock formation in the South Australian desert near the Anna Creek Station, halfway between Adelaide and Alice Springs. The site, home to the world's largest cattle station, is also in the centre of the Australian Defence Department's Woomera weapons testing site, a testing field the size of England.
Glenn Campbell | The Sydney Morning Herald | Fairfax Media | Getty Images

Now, two new bids are on the table: a 365 million Australian dollar ($278 million) offer from Australian Outback Beef (AOB) and a A$386 million proposal by a consortium of four Australian families known as the BBHO syndicate.

AOB is a joint-venture company majority owned by Hancock Prospecting, helmed by Gina Rinehart, Australia's richest woman, and one-third owned by Chinese developer Shanghai CRED. The BBHO group includes Australian land owners Tom Brinkworth, Malcolm Harris, Viv Oldfield and Sterling Buntine.

Sentiment seems to be leaning towards BBHO as its offer is higher and doesn't require Australian foreign investment approval or clearance from Chinese regulators, unlike the AOB deal. But should BBHO win, it could be painted as another example of an increasingly protectionist stance from Australia on foreign investment, particularly from China, sparking a possible backlash from a valued trade partner.

"If Australia is seen as being too protectionist and inconsistent in relation to foreign investment, we would be a less attractive destination," explained Vivienne Bath, professor of Chinese and international business law at the University of Sydney.

A sensitive topic

Canberra has long voiced its openness to foreign investment but a flood of Chinese funds, particularly into real estate, has created a popular impression with the public that Chinese companies were "buying up Australia," noted Bath.

And in recent months, the government has rejected a number of Chinese proposals for Australian state assets, citing national security and national interest issues.

Treasurer Scott Morrison blocked offers from State Grid Corp of China and Hong Kong's Cheung Kong Infrastructure in August to buy a controlling stake in Ausgrid, the country's biggest electricity network. The decision would "severely" reduce the appetite for Chinese companies to invest in Australia, China's Commerce Ministry warned at the time.

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"Opinions toward Chinese investment within Australia have been mixed, with some advocating for more leniency in foreign investment and others for greater transparency on the investor's part to allay local concerns," the Council of Foreign Relations said in a recent note.

It should be noted that some of the largest foreign bids to have been rejected have not been Chinese, including Royal Dutch Shell's attempt to take over LNG producer Woodside Petroleum, and U.S.-based Archer Daniels Midland's interest in GrainCorp.

The Kidman affair

When it comes to the Kidman estate, though, tensions are particularly high. Regulators already rejected two separate Chinese offers for the landholding, once in November 2015 and again in April this year.

Chinese deal-maker Charles Lieu, who worked on the $370 million April bid, told The Australian newspaper last month that bidders were badly treated by the Australian government. "This is an unfortunate trend developing in Western countries today, with deglobalization and xenophobia, populism and protectionism on the march," he said.

Among Kidman's ten cattle stations is Anna Creek, the world's largest of its kind. It's located within South Australia's Woomera Prohibited Area (WPA), which is home to the world's largest land weapons testing range, operated by the Royal Australian Air Force. It 's also highly prospective; officials estimate about $35 billion worth of iron ore, gold and other mineral resources are potentially exploitable from the area over the next decade.

Because the WPA is highly valuable to the government, the first Chinese offer was rejected in November on national security concerns. The Kidman family later agreed to exclude Anna Creek from future deals and the sale process was reopened in February. But even with the defense element out of the way, the sheer size and significance of the assets remained an issue, which led to the second rejection in April based on national interest concerns.

The Woomera Prohibited Area
Corporal Nick Wiseman | Australian Defence Force

The government could have handled the situation better by insisting on the block's break-up before sale, Bath pointed out.

Presently, Anna Creek is excluded from the Hancock-CRED offer, but it is included under BBHO's proposal.

Kidman is particularly sensitive for the government because it represents the largest holding of agricultural land held by a single owner in Australia, Bath explained. "An acquisition by a foreign investor of this amount of land would be a sensitive issue in any country, not just Australia."

Speculation is also high that Australian lawmakers are afraid Beijing will use Australian land assets to profit from Asia's growing food demand.

Australia has no difficulty financing its current account deficit, so it can afford to balance national interest concerns against the case for a free market, Shane Oliver, chief economist at AMP Capital, said.

Experts widely agreed, however, that Canberra should release clearly worded legislation on foreign ownership of nationally-sensitive assets in order to avoid confusion over deals.

"We need a clear political approach, not just an ad hoc determination," flagged Bath. In a more dire warning, former Foreign Minister Gareth Evans said in August that clear ground rules for foreign infrastructure investments must be introduced, or Canberra risked "a great deal of damage."

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