Insights from the latest OIO decisions

By Craig Nelson - 11 Apr 2016

This is the first of a regular blog on the workings of the Overseas Investment Office. We aim to help you better understand how the OIO consent process works by learning from the experience of others. If you have any questions regarding OIO matters, please contact Craig Nelson.

Retrospective Consent & Mortgages

New Wish Investment Limited obtained retrospective consent to acquire interests in mortgages secured over sensitive land. There are two points of interest here:

1. First, this was a retrospective application for consent. This means OIO consent was not obtained before making the investment, but was instead applied for and obtained afterwards. The Overseas Investment Act includes a process for retrospectively granting consent to allow investors to correct an inadvertent failure to get consent. Investors could be fined (among other remedies) for investing without consent, but the OIO will assess investments on a case by case basis. The OIO can take a pragmatic approach and allow an application for retrospective consent if there was a genuine mistake made by the investor.
2. Secondly, overseas investors need OIO consent to take mortgages over sensitive land. This is a useful reminder to take care with financing arrangements, as lenders can be surprised to learn that they need to get OIO consent. Exemptions are available to lenders who take mortgages in the ordinary course of business, but this exemption is narrow and strictly applied.

Only one benefit

In the Kerrytown Road Orchards LP decision, consent was granted for the purchase of 20 hectares of land for an apple orchard. Interestingly, the decision sheet only quotes one relevant benefit (out of 21 possible net benefit factors). The benefit was that the investor had made previous investments in NZ. It is unusual for consent to be granted on the basis that there is only one relevant benefit to NZ. While there are no strict rules on the number of benefits needed to get consent, in our experience somewhere between four and eight benefit factors are quoted when consent is granted. It is a matter of both the quality of the benefits as well as the quantity of benefits. As only one factor was quoted in this case, this suggests that the quality of that one benefit must be high.

Compare this, for example, with another decision which coincidentally relates to acquisition of land to develop an orchard made by T & G Global Limited. In this case, the decision sheet quoted six different benefit factors as being relevant to the OIO's decision.

Increasing shares in an existing investment

Rayonier Canterbury LLC obtained consent to acquire up to 100% of Matariki Forestry Group, in a context where it is already the majority owner. This decision highlights a consent requirement that is not always well understood by investors - that is, OIO consent is needed if you own or control 25% or more of a New Zealand company which owns sensitive land and you increase that stake.

Investors with foresight can seek OIO consent to acquire more shares than they plan to acquire initially (e.g. an investor intends to acquire 50% of a company, but seeks consent to acquire up to 100% to cover potential further investments). However, OIO consents typically lapse after 12 months, so any further investment cannot be delayed. It is possible to get this period extended, but the OIO will consider requests for extensions on a case by case basis.

Non-economic benefits

Ferrovial Services Australia Pty Limited obtained consent to acquire up to 100% of the shares in Broad Spectrum Limited. Of note is that the only two relevant benefit factors quoted in the decision sheet are that Ferrovial was considered to be a key person in a key industry and that rejecting the consent would affect the image, trade or international relations of NZ. This is a useful reminder to applicants to consider the full range of the 21 different benefit factors and that it is not always necessary to demonstrate a substantial direct positive economic benefit to NZ from the investment.

Environmental Factors

In our experience, the OIO can struggle to see the benefit of investing in forests where a forest is already established and well managed. New Forests was recently granted consent to invest in various forests. Based on the benefit factors quoted in the decision sheet, environmental factors (such as protecting / enhancing indigenous vegetation/fauna) appear to have played an important part.

For investors who might struggle to show a substantial economic benefit, think about what environmental benefits will arise from the investment.

Contact

Craig Nelson