News Analysis: Australian govn't sends mixed message with blockage of S. Kidman sale

Australian Treasurer Scott Morrison on Friday blocked the sale of S. Kidman and Co. Limited, the country's largest private land owner, to Chinese investor, saying the deal is "contrary to the national interest".

Dakang Australia Holdings Pty Ltd (Dakang), a consortium controlled by Shanghai Pengxin, has been the front-runner of the bidders with an offer of 370.1 million AU dollars (281 million U.S. dollars), which is significantly higher than earlier valuations.

Morrison said his "preliminary view" was that the deal to sell S. Kidman and Co. to Dakang Australia Holdings was "contrary to the national interest", the reason he had used to block the deal in November last year.

Morrison said in his statement that Australia welcomes foreign investment. The Coalition government has been using the slogan of "open for business" since it took office in 2013. However, when a foreign investment is in the agricultural sector or comes from a particular country, such as China, investors should better prepare for something unexpected.

In the case of S. Kidman and Co. land, Morrison blocked the deal in November 2015, citing reasons that the whole package of land for sale included Anna Creek, which is located within Australia's Woomera Prohibited Area (WPA) weapons testing range in South Australia.

S. Kidman and Co. then repacked the land, cutting off Anna Creek, which was then sold to the Williams Cattle Co. for about 16 million AU dollars (12 million U.S. dollars).

Nevertheless, the Kidman deal was blocked anyway. This time, the sheer size of the land became an issue.

"Given the size and significance of the Kidman portfolio I am concerned that the acquisition of an 80 percent interest in S. Kidman & Co Limited by Dakang Australia Holdings Pty Ltd (Dakang) may be contrary to the national interest," Morrison said in a press release.

The Kidman land portfolio is the largest private land holding in Australia. The Kidman portfolio holds approximately 1.3 percent of Australia's total land area, and 2.5 percent of Australia's agricultural land. Even after the excision of Anna Creek and the Peake properties, Kidman will still be Australia's largest private land owner and hold over one percent of Australia's total land area, and two percent of Australia's agricultural land.

Australians are proud of their vast land, however the government is uneasy with the fact that Australian businesses are not capable enough to keep them in Australian hands.

"I have concerns that the form in which the Kidman portfolio has been offered as a single aggregated asset, has rendered it difficult for Australian bidders to be able to make a competitive bid. The size of the asset makes it difficult for any single Australian group to acquire the entire operation," Morrison said.

"The size and significance of the portfolio, combined with the impact the decision may have on broader Australian support for foreign investment in Australian agriculture, must also be taken into account in this case," he said.

Deputy Prime Minister and Minister for Agriculture and Water Resources Barnaby Joyce welcomed the decision, saying "the Australian people have the right to say they have serious concerns about it being sold to foreign interests".

Joyce is head of the Nationals party, the minor party of the ruling coalition. The Nationals represents graziers, farmers, and rural voters generally.

Opposition leader Bill Shorten has also expressed "uneasy" feeling about the possible sale of S. Kidman and Co. land to Chinese investor. Influential independent Senator Nick Xenophon has vowed to make the S. Kidman land sale "an election battle line". The federal election is expected to be held in early July.

While politicians are playing the election cards, many people in the business and academic circles called for Australian government and businesses to embrace foreign investment, including those from China.

"(If) the Chinese capital markets have too much money and they want to go and buy assets here for, you know, multiples of what they are going to sell it for in the next five to 10 years, that's great news for Australia; it's a capital injection," Ellerson Capital chairman Ashok Jacob told the Australian.

"We should be running ticker-tape parades for everybody trying to come in and buy land that people have been trying to sell for the last 25 years," he said.

Peter Drysdale, emeritus professor of economics at the Australian National University, said in an article published earlier this year that direct foreign investment helps Australia maintain high productivity, living standards and economic security.

"There are not enough domestic savings to develop infrastructure, natural resources, and openness to foreign investment helps maintain a globally competitive economy. Foreign investment brings ideas, technologies and linkages into foreign markets. Allowing capital to go where it is most productively invested brings the highest return - not only to its owners but to the societies that receive it."

He said using national security as an excuse to raise barriers to foreign investment is "sloppy policy logic" and "creates an environment antipathetic to productive investment that would otherwise strengthen the national economy and national security, not weaken it". Endit