The Shoeshine Column: Crafty Waitangi commissioners land free Sealord quota catch

Friday 19th January 2001

PHOBIA: Winston's economic wonderland

Shoeshine would hate to be accused of being curmudgeonly, especially as he isn't entirely sure what it means. So he'll have to give credit where it's due and pat government ministers on the back for allowing Japan's Nissui to buy into Sealord.

Now the fisher and its half-owner, the Treaty of Waitangi Fisheries Commission, can get on with their job of making money. The Japanese will make money too, of course, but that's what foreign investment is all about.

Now we can all settle down to figuring out why exactly the government approved this deal when last May it rebuffed, at the last minute, all seven foreign bidders for BIL's 50% stake.

Cynics will recall how that decision, along with the Employment Relations Act, ACC, etc, precipitated a plunge in business confidence that sent worried ministers trekking up to Auckland to soothe business leaders' furrowed brows.

The idealistic rookie government of the time, they will suspect, has learned to duck when the shells of political and economic realism whoosh overhead.

This time around, of course, the deal is not the same as that proposed last May.

At that time the seven foreign companies, and the local Sanford-Amaltal consortium, were in a straight contest to buy BIL's Sealord shares. Their efforts came unstuck because the Fisheries Act says foreign companies can't, without the government's permission, own more than 24.9% of a New Zealand company holding fishing quota.

Under the circumstances laid out in section 57 - where, for instance, a foreign bidder can demonstrate it will create new jobs or contribute new technology or infrastructure investment capital - the ministers can authorise a larger stake.

Last May they didn't think that was the case. This time the deal was more carefully structured.

On the face of it Nissui isn't buying into a quota-holding company so it shouldn't have needed government approval. Sealord's 50% owner, the Treaty of Waitangi Fisheries Commission, is shunting legal ownership of all the company's quota into a purpose-built trust 100% owned by the commission.

BIL's exit price is $208 million. Nissui and the commission will each own 50% of the Sealord operating company, which will have the economic use of the trust's quota under a contract whose details remain under wraps.

Also unknown is how much, if any, of BIL's $208 million the commission will stump up.

The reason for Overseas Investment Commission and ministerial scrutiny of the deal lies in the quota leasing contract.

OIC chief executive Stephen Dawe this week referred to the difficulties of establishing who is a nominee and who isn't. His comments suggest there was some suspicion about the trust arrangement.

It's hard to see why. It's access to quota, not the legal niceties of its ownership, that counts in the real commercial world.

From Nissui's point of view the deal is essentially the same as the one proposed last May. Nissui, presumably, couldn't give a rat's patootie who owns the quota as long as it can yank the fish out of the sea and sell them.

If the operating company is half-owned by Nissui and it makes profits from selling fish then half that profit belongs to Nissui, unless the terms of the lease agreement say otherwise.

Given Nissui gets what it wants under either version of the deal Shoeshine suspects the commission's contribution to BIL's price will be precisely nothing. It has only a modest stockpile of cash anyway and has ruled out taking on debt.

Even so the deal, superficially at least, meets the requirements of the Act.

Nissui also has s57 back-up - it plans processing investments which, it says, could expand Sealord's 1600-strong workforce by up to 700 in Nelson and Dunedin over the next five years.

It's also promising research and development in areas such as aquaculture and value-added products.

Details about these are lacking and should prove
interesting. Any significant additional processing will require raw material.

Sealord's quota is a finite resource and the company is already one of the world's most sophisticated processors.

A lot of hard work went into structuring the deal and pushing it through and some will say the effort shouldn't have been necessary in the first place.

The Sealord stake was already owned by a company that is predominantly foreign-owned and is controlled by its Malaysian and Singaporean shareholders. BIL isn't in the fishing business and couldn't have contributed any industry expertise or contacts.

Nor did it want to put in any further investment. The commission had pre-emptive rights to the stake but it couldn't afford to exercise them.

So, Sanford-Amaltal aside, the choice was between the status quo - a foreign shareholder who would contribute nothing - and a foreign shareholder willing to invest in infrastructure, technology, and jobs.

Of course, not everybody will be pleased. New Zealand First's Winston Peters, ever on the lookout for an opportunity to exploit foreign investment phobia, has been playing on Nissui's whaling associations.

Ngapuhi's Dick Dargaville last year threatened legal action if the commission didn't exercise its pre-emptive rights, saying the Sealord settlement always intended that the company be Maori-owned.

But as the commission gets pre-emptive rights when Nissui wants to sell out he's comfortable with the current deal.

And so he should be. From the commission's point of view the deal is simply brilliant.

It gets the partner it wanted all along. And it gets title to half of Sealord's quota for nothing.

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