Key Points:

A $258 million deal to sell a New Zealand iron sands operation to Hong Kong's Cheung Kong Infrastructure Holdings has been scuppered amid plunging steel prices and economic uncertainty.

Cheung Kong, controlled by tycoon Li Ka-Shing, had announced the deal to buy Australian-owned BlueScope Steel's Taharoa iron sands operation, south of Raglan just four months ago.

The application was rejected by the Government because CKI did not meet the Overseas Investment Act criteria of substantial and identifiable benefit which was relevant to the acquisition of business assets which included sensitive land.

"The criteria was not able to be met because of the current global economic conditions affecting the business operations of the proposed investment," Finance Minister Bill English said.

In a summary of the decision, the Overseas Investment Office said "given the reduced demand for the product produced by the mine and the deteriorating global economic conditions, CKI has come to the decision that plans to expand the business are no longer viable".

Taharoa Iron Sands mines and exports iron sand to steel producers in China and Japan. In the year to June it reported revenue of approximately $53 million. It is owned and operated by New Zealand Steel Mining and was acquired by BlueScope Steel as part of the acquisition of NZ Steel from the Government in 1992.

BlueScope is Australia's biggest steel maker and last week said sales had plunged 25 per cent between October and November.

It has been forced to shut down one of its Australian blast furnaces six weeks earlier than planned, will raise A$300 million from an institutional placement at a heavily discounted price of A$3.10 a share and it would also force staff to take extended Christmas leave.

A deal would have been the second for for Cheung Kong Infrastructure in New Zealand this year. In April it bought Vector's Wellington power network for $785 million.

Cheung Kong has interests in 56 countries, about 260,000 employees and assets including property, hotels, telecommunications and ports.

Earlier this year Li, with a net worth of about US$26.5 billion, was estimated to be the world's 11th richest person.