Natural Dairy shelves $1.5b expansion plan

May Wang. Photo / Natalie Slade

The Hong Kong company hoping to buy 16 Crafar farms has shelved its ambitious plans to spend up to $1.5 billion setting up a dairy business in New Zealand - for now.

Natural Dairy has announced that it has terminated its agreement with May Wang and her backers to expand its business in New Zealand, after a dispute with the Hong Kong Stock Exchange (HKSE).

The company voluntarily suspended trading in its shares in February, pending further details about a potentially substantial acquisition.

The following month it announced it had agreed to pay $1.5 billion for "certain assets", including farms, livestock and milk powder production plants "for the purpose of consolidating the dairy business operation in New Zealand".

Full details have yet to be given to shareholders, and the company has now agreed to rethink its strategy, after the HKSE insisted the deal amounted to a reverse takeover and would therefore need to be treated as if it were a new listing.

Natural Dairy disputes this, but has decided to ditch the deal to allow trading of its shares to resume.

The decision does not affect an earlier agreement by Natural Dairy to buy out Wang's company, for which it has already paid a $100 million downpayment, although that transaction has yet to be approved by the Overseas Investment Office (OIO).

It has also agreed to continue negotiating with Wang and her backers on an exclusive basis over the next nine months.

But Natural Dairy spokesman Bill Ralston confirmed that its main focus was now on the four Crafar farms it has already bought, and the 16 it still hopes to buy.

"Quite rightly, they have decided to concentrate on the project in hand," he said.

HKSE records appear to show Natural Dairy has so far managed to raise just $137 million through convertible bonds and notes to help fund its expansion plans. These were converted to shares as soon as trading resumed last week.

Ralston said he understood the company had raised more than that, but was not prepared to elaborate.

A division of China Construction Bank, of which former Prime Minister Dame Jenny Shipley is a director, is one of several institutional investors which now own a stake in the company.

Although its bid to acquire all 20 Crafar farms has yet to be approved by the OIO, Wang and her backers appear to be going ahead with plans to set up a processing plant in Tauranga.

Wang still has a deal to supply Natural Dairy with at least 150 million packets of UHT milk, and the company has previously announced plans to spend $20 million on milk processing facilities in New Zealand.

Companies Office records show Wang set up a company at the end of July called NZ Dairy Processing, based at a property in Maleme St in Tauranga.

The property has previously been advertised by Bayleys as a fully operational MAF-approved meat processing plant.

Tauranga city and port officials claimed last month they knew nothing about plans to turn the plant into a milk processing facility. But a previous lessee told the Herald yesterday he understood the plans were well advanced, and that the plant was already being refurbished.

By law, Fonterra is required to supply its rivals with up to 50 million litres of raw milk, and it is understood it still has a deal with Wang.

Meanwhile, Natural Dairy has announced plans to contribute $200,000 to earthquake relief efforts in Canterbury.

According to Ralston, the company has no interest in acquiring any of South Canterbury Finance's assets, which are believed to include many farms.

The company has also revealed it may have to write down the value of its mining assets by about $42 million, because of a deal it has labelled "unauthorised, invalid, fraudulent and unlawful".

Before Auckland businessman Jack Chen engineered the reverse takeover of Natural Dairy last year, the Hong Kong listed company was known as China Jin Hui Mining.

Its share price climbed sharply to HK$2.57 after trading resumed last week, but has since dropped to around HK$2.20.

WHAT NEXT
* Natural Dairy is still awaiting approval from the Overseas Investment Office to buy the Crafar farms, and to buy out May Wang's company.
* It has agreed to continue talking to Wang on an exclusive basis for nine months about further purchases in New Zealand.
* It is still going ahead with plans to import UHT milk from New Zealand.