OIO takes legal advice over egg firm sale

The sale of New Zealand’s biggest egg producer struck a snag over good character tests. But, as David Williams reports, the Overseas Investment Office has redacted details from official documents.

Mainland Poultry’s new overseas owners are of good character, the Overseas Investment Office has declared.

But the Government watchdog only came to that conclusion after seeking legal advice over mystery allegations redacted from official documents released to Newsroom.

Malaysian-headquartered private equity firm Navis Capital Partners announced in April it was acquiring a majority stake in Mainland Poultry, New Zealand’s biggest egg producer. According to The Australian newspaper, the purchase price was $350 million – for a transaction that left Navis, through myriad subsidiary and holding companies, with 75 percent of the company.

(Through egg-producing company Zeagold Foods, Mainland produces about a third of the country’s eggs, boxed in well-known supermarket brands Farmer Brown and Woodland.)

The OIO report into Navis’s investment, released to Newsroom under the Official Information Act, is heavily redacted. An entire appendix is devoted to the good character test, outlining the “allegations that we are aware of against Navis Capital Group” and “certain individuals with control”. The names of some individuals in Navis ownership tree have also been redacted.

“We have given careful consideration to the allegations.”

– Overseas Investment Office report

All of the “matters revealed through open source searches” in the OIO report are redacted – as is the legal advice. It was LINZ senior solicitor Elspeth Knewstubb who advised ministers.

It is unusual for the OIO to seek legal advice over good character tests – a safeguard designed to weed out nefarious investors and protect New Zealand’s reputation.

The appendix to the OIO’s Mainland report notes no breaches of the law have occurred.

“We have given careful consideration to the allegations,” the appendix report says. “We initially became aware of these allegations through our open source searches of the relevant overseas person and its individuals with control.”

The allegations “do not prevent a finding that the individuals with control of the relevant overseas persons are and remain of good character”.

Navis’s co-managing partner Nicholas Bloy says via email: “We have no comment to make on the matters raised.”

Private equity firms run investment funds which generally swoop on small companies, increase their value and sell for a profit.

In 2014, The Economic Times – part of the Times of India group of companies – detailed a spat between Navis Capital and Mumbai’s Musale family over Classic Stripes Pvt Ltd, the world’s largest maker of automotive graphics.

Navis paid $US100 million for a 51 percent stake in 2011. But three years later, Kishore Musale quit as managing director, citing Navis’s “excessive interference and mismanagement”.

In 2016, with the backing of US-listed investment management company Kohlberg Kravis Roberts & Co, the Musale family bought back the 51 percent stake.

Several scandals

New Zealand’s egg industry has been rocked by several scandals in the last year. A Newsroom investigation into Palace Poultry revealed millions of eggs packaged as free range were likely to have been laid by caged hens.

In November, Direct Animal Action released footage at a Whangarei egg farm, run by Zeagold Foods, which showed mice running through cages and dead chickens floating in water. Less than a week later, Ministry for Primary Industries inspectors turned up unannounced and said it found no animal welfare concerns.

(Mainland’s OIO report redacted the locations of its 17 freehold or leasehold sites across the country, lest the information fall into the hands of animal activists.)

Also, a petition is calling for the Waikato District Council to decline a proposal by Mainland to build a massive egg-laying farm, including 17 sheds with up to 50,000 birds in each, at Orini.

Navis’s deal to buy 75 percent of Mainland Poultry, through New Zealand company Dragline Ltd, was granted Overseas Investment Office approval in September – eight days before the general election. Mainland has interests in about 635 hectares of sensitive land at 17 sites.

Through yet another company, Indus Valley Ltd, Mainland’s former owners retain a stake of about 25 percent – Michael Guthrie 14.2 percent, Murray Valentine 7.1 percent, Jeff Winmill 3.2 percent and Hamish Sutherland 0.5 percent.

Mainland Poultry produces eggs, rears layer hens and produces animal feed. Mainland’s egg division, Zeagold, produces 36 million dozen egg equivalents a year. The company also breeds layer hens and has a subsidiary, Mainfeeds, that manufactures animal feed.

New Zealand’s animal welfare code of conduct for layer hens requires egg producers to phase out conventional cages by 2022. Mainland’s offshore investment is intended to speed up that process.

Eyeing expansion into Asia

According to the OIO documents, Navis will appoint an Asian business development manager and invest millions of dollars into Mainland to increase exports. The company intends to develop a recently acquired farm in the Waitaki district into a free range egg farm.

In its OIO application, Navis talks up its food company links. It says it has “significant protein production expertise through its majority investment in Cherry Valley, a world leader in duck genetics and primary breeder of Peking ducks globally”.

Yet in August, just as the Mainland transaction was presumably being considered by Government ministers, Navis Capital announced it was selling its controlling interest in Anatis UK Ltd, Cherry Valley Group’s parent company.

The OIO application lists Navis’s New Zealand-related investments as Retail Apparel Group, including 13 Tarocash and yd stores, and Australasian education resource and toys company Modern Star.

On May 25, 10 days after the application was first lodged, Navis announced it was selling its majority stake in RAG to South Africa’s The Foschini Group in a deal worth A$302.5 million.

Dragline asked for an exemption from the requirement for Mainland's farmland to be advertised on the open market, because the sale, marketed by ANZ, was bundled as an entire business.

Navis’s Phil Latham, of Sydney, told BusinessDesk in April that Mainland needed between $40 million and $80 million in new capital to phase out battery cages.

How long will Navis likely hold its investment in Mainland? In the same article, Mainland’s former majority shareholder, Dunedin’s Michael Guthrie, said: “I think Mainland could well be listed on the New Zealand stock exchange in the future.”

Navis manages about US$5 billion (NZD$7.2 billion) in equity capital, with more than 70 “control transactions” across Asia since it was established in 1998.