Overseas interest in farming assets

A public float or foreign sale of some or all of South Canterbury Finance's farm assets looks likely in the face of growing interest from overseas investors.

Cash-rich overseas pension funds and investors have been scouting for New Zealand dairy farm investments, and sources say the high quality of South Canterbury Finance's (SCF) farm shareholdings would prove attractive.

In a bid to recapitalise itself, South Canterbury Finance plans to divest non-core assets, which could include shareholdings in farm holding companies Dairy Holdings and South Island Farm Holdings.

Together, the two companies own or have shares in 78 South Island farms, mostly dairy.

Many of them are described as desirable.

But, with many dairy farmers strapped for cash and banks a lot tougher with their lending criteria, many farmers may not be in a position to to purchase the shares in their farms they do not own.

SCF has said it would sell its farming assets only "if appropriate," over the next six to 12 months.

While both farming companies would attract interest, it has said South Island Farm Holdings (SIFH), which has stakes in 20 mostly dairy farms, was likely to be sold.

The Otago Daily Times has learned cashed-up overseas pension funds have been attracted to New Zealand by the diversity and long-term potential of dairying, and there is also a general resurgence of interest in dairy farm investments.

Should Dairy Holdings come on the market, sources say it would attract plenty of interest, not just from overseas pension funds, but also from Australia and local investors.

The average purchase price of dairy farms peaked about two years ago at over $40/kg of milk solids produced, but has come back down to about $34 a kg.

PGG Wrightson real estate manager Stuart Cooper said between 2300 and 2900 farms sold in New Zealand each year, but so far this year just 1000 had sold.

While the market was picking up, it was not saturated.

Usually, it took 80 to 90 days from listing to selling, but now was taking 180 days.

According to SCF documents, as at June 30, its rural loan portfolio stood at $178 million, made up of 246 loans with an average settlement value of $665,000.

Two of the loans were for more than $10 million each.

Craigs Investment Partners broker Peter McIntyre said there would be plenty of interest in a public float of a farming company, proven by Tasman Agriculture, which progressively sold down its holdings earlier this decade.

Mr McIntyre said overseas investors had been active in New Zealand agriculture, evident by last week's news China's Agria was investing $36 million in PGG Wrightson.

Japan's Mitsui Corporation is a cornerstone shareholder in Canterbury dairy company Synlait, as is Olam International from Singapore in Open Country Dairy, which has plants in the North and South Islands.

Russian corporation Nutritek owns New Zealand Dairies, at Waimate.

Mr McIntyre said the quality of New Zealand's agricultural production and proximity to the growth region of Asia made it attractive.

"The appetite for agricultural companies is getting strong because everyone realises the huge growth out of Asia."

SCF could make a private placement of its farming shareholdings, sell them to an overseas investor, subject to Overseas Investment Office approval or conduct its own float.