No class exemption for international custodians, OIO says

Monday 4th April 2016

The Overseas Investment Office can't issue a class exemption for foreign-owned custodian firms, even if they hold shares for a majority of locals.

The unit of Land Information New Zealand which assesses foreign investment has always interpreted the law as meaning any company with more than 25 percent of its shares held offshore as triggering the definition of an "overseas person", including international custodians that may be holding shares on behalf of New Zealanders. In the past, it has granted exemptions to individual companies, but doesn't have the power to issue a class exemption, it said in a statement.

"The OIO is now looking at how it can provide greater clarity and certainty on this issue for companies, nominee companies and investors," it said. "In the meantime, the OIO will not be taking any action against custodian companies that haven't applied for an exemption, or target companies that may have been affected."

The office came under criticism over its interpretation in a note by law firm Russell McVeagh on Friday, which called the interpretation "problematic", adding there was an "additional burden for transactions never intended to be caught by the act."

The law firm said the interpretation will capture a number of listed companies not previously considered overseas persons, and “calls into question a wide range of previous transactions undertaken without OIO consent and would require retrospective applications for consent for such transactions.”

OIO manager Annelies McClure last week told BusinessDesk there was a dearth of case law relating to the Overseas Investment Act, and that a series of 2012 judgments were useful for the office, even though they created extra work in requiring a more robust counterfactual analysis.

Those decisions related to Shanghai Pengxin's acquisition of the Crafar family farms which were opposed by a consortium fronted by former investment banker Michael Fay.

Pengxin was poised to go to court after ministers overruled an OIO recommendation and rejected the company's bid for the Lochinver sheep and beef station near Taupo, but withdrew its application for judicial review last Friday, saying it didn't want to create an unnecessary distraction when New Zealand and China prepare to update their 2008 free trade agreement.

(BusinessDesk)

BusinessDesk.co.nz

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