7 July 2014
Queensland Country Life
A NEW consolidation phase in Australia’s cattle station market has begun with private investors, such as Australia’s richest person Gina Rinehart, through to overseas investors and institutional money stepping into the distressed sector.
A number of prominent investors have taken positions in listed cattle station owner Australian Agricultural Company and there are several major opportunities arising with established cattle companies and privately-owned operations considering their options.
The $430 million North Australian Pastoral Company, which reported another multimillion-dollar loss this year, had a major stake of its business on the market last year, while Macquarie Group’s $700 million pastoral fund, which was created in 2006, is due to be rolled over within the next 12 months following a $46 million loss.
Numerous family operations are selling, including the Camms, McCamley where there are sensitive reviews taking place. The consolidation phase comes as the nation’s supply of cattle diminishes following drought and high debt levels.
However prices are set to rise for cattle according to Rabobank’s head of food and agribusiness research Bill Cordingley, and there are faint signs that cattle station values are improving. Free trade agreements with Japan, growing demand from China and positive live export relations with a new Indonesian government are contributing to the renewed interest.
Overseas investors, such as Pensionskassernes Administration – a Danish pension fund – have bought in to the sector with $60 million of Queensland cattle stations, while Indonesian companies Great Giant Livestock and Santori bought separate Northern Territory stations for $50 million. Swiss-backed Agricultural Investment Development has also picked up more than $10 million in stations.Great potential to be food producer
However it is the BRW Rich Listers – including mining billionaires Ms Rinehart and Andrew “Twiggy” Forrest, pastoralists the MacLachlan family, and media buyer Harold Mitchell – who have turned people’s attention to the sector, with more than $100 million worth of cattle station purchases over the past 12 months.
“Australia’s north has vast potential as a food producer and we are well-placed to meet the growing needs of our Asian neighbours,” Ms Rinehart said last week after taking a 50 per cent stake in two large stations in the West Kimberley ultimately owned by the Milne Agrigroup. Milne managing director Graham Laitt told The Australian Financial Review the new partnership with Ms Rinehart would look to expand. “The sector is on the cusp of significant opportunity; if we are to get them then we need to scale up,” he said.
Elders Western Australia’s Greg Smith took calls at least twice a week from investors looking for cattle stations with at least 20,000 head. “The main problem we have is the properties aren’t big enough,” Mr Smith said.
“I had one overseas buyer ring up and say they wanted a property with 80,000 cows and really that sort of thing in Australia doesn’t exist.”
It is the same problem faced by Deloitte’s national industry leader for agribusiness Rob McConnel. “In our conversations with parties looking to deploy capital in this space, scale is important, but given the fragmented nature of the Australian agriculture sector, deploying large amounts of capital efficiently is not always an easy task,” he said. “This leads to the question of further consolidation or aggregation at the farm-gate level and while these aggregations might bring scale, there have been structural challenges in the execution of such strategies centred on valuation, legacy infrastructure and operational efficiency.”Chinese group buys abattoir
The interest from overseas investors, particularly Asian countries, extends beyond cattle stations and up the chain to processing facilities. Queensland’s Kilcoy abattoir was purchased by Chinese company New Hope Group for about $80 million while Chinese conglomerate WH Group has been frequently linked to the sale of Tabro Meats in Victoria’s Gippsland for more than $30 million. Chinese food importer Heilongjiang Grand Farm Group also struck a deal to spend up to $200 million buying farms and investing in abattoirs. Colliers Rural and Agribusiness associate director Tim Jelbart said relationships with overseas investors was critical. “The established relationship with China that the likes of Gina Rinehart and Andrew Forrest have are key – it’s the hardest thing to sort out,” Mr Jelbart said. However he suspects a lot of the buying has been about vendors being realistic.
“The liquidity in the north has really been met by vendors willing to meet the market. Most of the interest has been in the high-grade asset, but anything under $5 million is a lot harder to sell.”
CBRE regional director for agribusiness Danny Thomas said the new money flowing into cattle-related assets was all about recognising value.
“A lot of the participants reflect new capital and that means they are seeing value the existing investors do not.”
One bank alone has knocked back up to $1 billion-worth of refinancing requests from clients of competing banks. The dangers remain that there could be a further fall in value for properties if some operators – who have had to sell large parts of their cattle herd and are left without cash flows – cannot cover their debts and are forced to sell.
Courtesy of Queensland Country Life
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7 July 2014