Australian regulators and lawmakers will face some difficult decisions as Chinese state-owned enterprises resume their efforts to expand in Australia by way of mergers. Potential deals could come in sensitive industries such as natural resources and subway construction, as well as the evocative sale of agricultural assets.
China Mengniu Dairy (CIADY) on Monday said it had inked a deal to buy baby-formula maker Bellamy's Australia (BLYYY) for A$1.5 billion (US$1.0 billion). The bid, at A$13.25 per share, has been unanimously approved by Bellamy's board, which has advised shareholders to vote in favor of the offer.
The purchase by Mengniu, China's largest dairy farmer, will still require court approval and the OK from the Australian Foreign Investment Review Board. The FIRB must sign off on all purchases by foreign companies.
Australia earlier this year blocked the Chinese telecom Huawei from participating in Australia's 5G network, on national security grounds.
Exxon Mobil (XOM) on Wednesday said it is looking to sell its oil and gas assets in the Bass Strait, which separates the Australian mainland from Tasmania. Exxon is the largest oil and gas explorer in that part of Australia, with its holdings in the Gippsland Basin.
The company said no buyer has been identified so far. But Chinese natural-resources companies, all with significant state ownership, have been on the hunt for international assets to supply China, which imports more oil than any other nation in the world.
Australia in 2018 rejected a A$13 billion (US$8.9 billion) bid for the natural-gas company APA Group (ASX:APA) from Hong Kong-based CK Infrastructure Holdings (CKISY) . Aussie Treasurer Josh Frydenberg cited an overconcentration of gas-transmission ownership in foreign hands as the justification.
Current Prime Minister Scott Morrison, who was Australia's treasurer in 2016, at that time rejected a A$10 billion (US$6.9 billion) bid for 50.4% control of the Australian electricity utility Ausgrid from CK Infrastructure and the State Grid Corporation of China, citing security concerns.
The Australian developer Lendlease Group (LLESY) is currently also seeking to sell its engineering business, which caused an implosion of the share price in January. The company announced as much as A$750 million (US$515 million) in write-downs due to overruns on a Sydney tunneling project and other engineering delays. As a result, Lendlease posted a 41% drop in profit for the year through June 30.
Reuters says more than one Chinese company is looking at bidding on the Lendlease engineering business. Second-round bids are due within two weeks.
The Lendlease engineering unit is working on sensitive projects such as the A$11 billion (US$7.6 billion) Melbourne Metro project to tunnel a subway line under that Australian city. It has also teamed with CIMIC on a string of projects for the new Western Sydney International Airport.
Lendlease had better news in July, when it announced a US$15 billion contract from Google (GOOGL) to develop residential and retail property in Silicon Valley.
Mengniu CEO Minfang Lu noted that Bellamy's Australia has a "proud Tasmanian heritage," and a "track record of supplying high-quality organic products to Australian mums and dads." Mengniu is 24% owned by COFCO, the vast state-owned food company. COFCO is both China's largest food producer and Mengniu's largest shareholder.
Bellamy's CEO Andrew Cohen said that Mengniu's distribution capabilities are attractive, and should enable the Aussie company to expand. That would deliver on the founder's "original vision of a truly iconic Australian brand."
The company markets its Bellamy's Organic brand with the slogan "A pure start to life." Ads feature wholesome images of Aussie families picnicking in front of flowing streams, and sturdy farmers marching in front of herds of Friesian cows in unfenced fields.
I was pretty skeptical that Chinese companies like Mengniu were significantly influenced by the Beijing government. My view has changed. The Communist Party and the Chinese government are quite clearly attempting to use their holdings in state-owned enterprises to influence corporations overseas.
The commission in charge of China's state-owned enterprises has ordered Chinese state-run companies to increase their operations in Hong Kong, as I revealed on Friday, to bolster China's soft power over the city. It has also instructed them to increase their investments in Hong Kong private companies, so that the Communist Party can influence corporate decisions through board members that it helps select.
Morrison, now the Australian prime minister, in 2016 blocked as Treasurer a A$371 million (US$255 million) bid from Shanghai CRED and Hunan Dakang Pasture Farming for Australia's largest private landowner, S. Kidman & Co. Kidman is a cattle-farming company, and had been made a lower offer by an Australian consortium of outback cattle families, creating political tension over the sale. A small fraction of the land was next to a weapons-testing range for Aussie defense forces.
Shanghai CRED was finally able to buy a one-third stake in S. Kidman & Co., less than it planned, after it teamed up with politically connected mining magnate Gina Rinehart, who with a A$14.8 billion (US$10.2 billion) fortune is Australia's richest person. The deal excluded the Anna Creek Station, the single largest farm in the Kidman empire, which is next to the firing range and was sold to the Williams family, stalwarts of South Australian farming.
The amount of agricultural land that is owned by foreign interests has held steady at 13% for the last three years. U.K. owners are the largest foreign owners, with 2.6% of Australian farmland, with China second, at 2.3%. But the Kidman holding, now owned by the newly formed company Australian Outback Beef, would count as an Aussie owner.
Chinese companies are keen to sell produce from Australia and New Zealand into China, where basically no one trusts the local produce.
A Mengniu joint venture was caught up in the 2008 scandal over Chinese companies that added the chemical melamine to infant formula.