The government has suspended negotiations with Westland Cooperative Dairy Company to conclude financing arrangements for a $10 million loan after news the dairy company had reached a conditional agreement to sell the cooperative to Inner Mongolia Yili Industrial Group.
“The proposed sale means that a loan from the Provincial Growth Fund will not go ahead at this stage. If the sale is ultimately confirmed by shareholders then the loan will no longer be required by the company,” the head of the Provincial Development Unit Robert Pigou said in a statement.
The government has allocated $3 billion over a three-year term to invest in regional economic development through the PGF.
Last November, the government announced the PGF would provide Westland with an interest-bearing, repayable $9.9 million loan for a milk processing plant. Today, however, the cooperative said it had signed a conditional agreement to sell to Yili for $3.41 per share in a deal worth $588 million, including debt and liabilities. The debt and other assumed liabilities total $342.5 million.
“The process to negotiate funding from the PGF is robust and, in this case, we have been mindful of the possibility the company would change hands,” said Pigou.
The loan had sparked criticism with National MP Paul Goldsmith consistently demanding to know the terms, which were not disclosed, arguing that it is not possible to assess the effectiveness of the fund’s investment without those details.
Treasury had recommended the government defer the decision to lend the funds. In a briefing to Finance Minister Grant Robertson, it said it understood that Westland was unable to get a loan from its bank on acceptable terms and “the Crown would be acting as a lender of last resort.”
As a result, the decision should be deferred until more consideration is given as to whether it should act as a lender of last resort to a private company. “Agreeing to this proposal may set a precedent,” it said.
The $9.9 million PGF loan was earmarked to fund a new $22 million manufacturing plant targeting higher margin products.