This record is a partial extract of the original cable. The full text of the original cable is not available.

160051Z Nov 05

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