Terra Firma seeks premium for "Project Ribeye" Australian farm sale

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The hefty mark-up for the 5.5 million ha property could leave foreign bidders in the box seat, testing the government's appetite for foreign ownership less than two years after it rejected China-led bids for an energy grid and agricultural company.
Reuters | 12 may 2018

Terra Firma seeks premium for "Project Ribeye" Australian farm sale
 
By Jonathan Barrett
 
SYDNEY, April 13 (Reuters) - British private equity firm
Terra Firma is aiming to raise more than A$1 billion
($775 million) for its Australian cattle stations, sources said,
arguing for a hefty mark-up that has already priced at least one
local party out of the process.
 
With first round bids due imminently, the high expectations
could leave foreign bidders in the box seat, testing the
government's appetite for foreign ownership of sensitive assets
less than two years after it rejected China-led bids for a major
energy grid and agricultural company.
 
Terra Firma, which bought Consolidated Pastoral Co (CPC) in
2009, is seeking a 20 percent-plus premium to a 2017 asset
valuation, two people with direct knowledge of the sale said,
arguing that some land can be developed to grow high-yielding
crops.
 
"What they are seeking to do is sell people the idea that
they have an embedded option to convert to high-use agricultural
land as opposed to just cattle grazing," said one interested
Australian party, who did not want to be named due to
non-disclosure arrangements tied to the deal details.
 
"We can't get anywhere near the numbers they are talking
about," said the person, who added the guidance was too high for
them to bid.
 
CPC's 16 properties across northern Australia have a 400,000
head carrying capacity and cover 5.5 million hectares (13.6
million acres), about the size of Croatia. The business, which
includes a 90 percent interest in two Indonesian feedlots, had
A$881 million in assets, according to a March 2017 valuation.
 
The CPC business is half the size of Kidman & Co which sold
in late 2016 to Australian mining magnate Gina Rinehart and her
minority bidding partner, Chinese developer Shanghai CRED, after
two China-led bids were rejected by the government.
 
However, it is being marketed at well over double the price.
 
The properties are hitting the market at a time of upbeat
beef export forecasts and favourable weather conditions, and
boast a strong geographic position close to Asian export
markets.
 
Dubbed "Project Ribeye" by selling agent Knight Frank, which
is advising Terra Firma on the deal alongside Goldman Sachs, the
sellers are emphasising the crop potential.
 
An introductory sheet sent to prospective buyers and
reviewed by Reuters, notes the land has more than 10,000 square
kilometres (3,860 square miles) of natural irrigation and
capacity to pursue large-scale cropping.
 
CPC said in a statement it had also developed the potential
of the land through fencing and new watering holes, offering an
opportunity for the next owner to "drive more value". Terra
Firma declined to comment.
 
DEAL OBSTACLES
 
New rules announced by the Australian government early this
year amid concerns over China's expanding interests require
agricultural land sellers to advertise and market the holdings
to Australians first.
 
However, the anticipated premium for CPC would make a local
sale to all but the wealthiest cattle-focused parties difficult
given the need for major capital works, an agricultural company
representative with access to the deal details told Reuters.
 
As cattle stations, "they are relatively low yielding
assets," the person said.
 
"The carrying value shouldn't be too far off the sale price,
so it's quite the sales task to get the premium they are after."
 
The properties would likely draw bids from overseas
companies with an eye on long-term food security, said Michael
Chaplain, an agricultural property valuer at Taylor Byrne based
in Australia's north-east.
 
However, any foreign bid would attract government scrutiny.
 
Outspoken Independent MP Bob Katter, from Queensland where
several of the CPC stations are located, said he would lobby to
have CPC returned to Australian hands.
 
"Every time a local farmer wants to buy a station they are
outbid by foreigners," Katter said. "We need to reverse the
trend."
 
Australia's Foreign Investment Review Board, which advises
the government, has signalled it would generally be prudent for
foreign-led bids to have an Australian partner, said Hans
Hendrischke, professor of Chinese business and management at the
University of Sydney Business School.
 
"That is a shift of emphasis, but it is not hard-wired," he
said. "It doesn't mean that new big deals from a (single entity)
won't be approved."
 
Interested local bidders will likely include pension funds
and wealthy private companies, including Rinehart's Hancock
Prospecting, which recently added two cattle stations in the
Northern Territory to its already significant pastoral holdings.
 
A spokeswoman for Fortescue Metals chairman Andrew
Forrest, who has also been touted as a potential bidder, said he
was not interested, while a Hancock Prospecting spokeswoman said
the company did not comment on commercial matters.
 
Further consolidation of premium farmland in the hands of
private Australian companies would likely attract scrutiny from
the country's competition regulator.
Source: Reuters
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