Voyage to the land of milk and honey

FRESH ONSLAUGHT: Natural Dairy is not discussing any specifics, but hopes to get its share suspension lifted after an audit in July.

Thwarted Crafar farms' buyer Jack Chen is offside against New Zealand but says it's time to interfere with the play, regardless.

It's a sticky late spring morning in Hong Kong and, at the 67th floor of the blue chip Central Plaza building, the lift opens onto a shiny white foyer with walls proclaiming these to be the offices of Natural Dairy (NZ) Holdings. A huge model of a black and white dairy cow leaves visitors in no doubt about the nature of this business.

I'm meeting Chen at the invitation, and in the company, of Natural Dairy's Kiwi lawyer Kerry Knight. I expect Knight's smart phone to tell us any minute Chen is not going to turn up. To say Natural Dairy has avoided the media is like saying Cook Strait can get a little choppy.

But here he is – awaiting us in a well-cut suit, his back to a gob-smacking view of Hong Kong harbour, with another Chinese man who will apparently be our interpreter.

Chen claims not to speak English sufficiently for this meeting. But he gets points for offering to answer any and all questions.

The first thing to clear up is exactly what Chen's position is with Natural Dairy. In New Zealand he has been loosely reported as "the backer" of the Crafar farms deal while the equally elusive Wang was the fronter.

The interpreter says "Jack Chen has no shares and no management position with Natural Dairy".

So why does he seem lord and master of these plush Natural Dairy offices? Chen jumps to the whiteboard, as he does often in this meeting. He shows how he "facilitated" the relationship between Natural Dairy and his business connections in China. Chen, 44, is apparently wealthy through real estate investments and a family Chinese wine, milk and beverage manufacturing and distribution company he still owns. In 2009 he says he saw the potential to sell "safe" milk from New Zealand to food scare-jittery China, around the same time that Wang saw the opportunity to buy the Crafar farms to supply that milk.

Wang was negotiating privately with the Reporoa-domiciled Crafar family when the receivers were called in by banks in 2009.

As Chen tells it, Wang then saw the opportunity to do a deal with the receivers and on-sell the farms. Meanwhile, Chen had sold to rich-list Chinese friends and contacts the concept of importing New Zealand products – dairy, honey and wine – into China.

The vehicle would be the loss-making, Hong Kong-listed, Cayman Islands-registered, China Jin Hui Mining company, which would be acquired and renamed Natural Dairy. Wang's New Zealand-registered UBNZ group and Natural Dairy bought into each other, and Chen's wealthy connections became shareholders in Natural Dairy by buying into a convertible notes issue. The plan was for Natural Dairy to take over the farms when New Zealand Overseas Investment Office approval came through. The deal needed consent because it involved "sensitive" land and was for more than $100m.

While all this was happening, Wang was under growing pressure in New Zealand from the taxman and banks over the 2008 failure of her property development company Dynasty Group. She owed creditors $22 million and was adjudged bankrupt in the High Court in December. She still faces three criminal charges brought by the Economic Development Ministry under the Companies Act.

Sunday Business understands Wang, a New Zealand citizen now living in Hong Kong, is seeking an annulment of the bankruptcy adjudication.

As Chen sees it, Wang's financial woes were a throw-in which foiled Natural Dairy's shot at the Crafar goal. He does not understand why New Zealand authorities judged Natural Dairy by linking two "completely separate" issues: Natural Dairy's application and Wang's finances. Chen says when Wang approached him with the Crafar farms proposal, he did not know her "financial background'.

In an exclusive interview with BusinessDay last year, Wang said she knew Chen because they attended the same Buddhist temple in Auckland. Chen says he has no "business dealings" with Wang these days. She lives in Hong Kong and it is understood she advises Natural Dairy.

The interpreter repeatedly reminds me that Chen is not a shareholder or director of Natural Dairy. But Chen agrees his nephew is its chairman. Pressed on why he is not a shareholder or director, Chen claims he could have been charged with insider trading by the Hong Kong stock exchange if he set up the deal and then profited from its success as a shareholder.

Natural Dairy's shares have been suspended almost constantly since it morphed out of the mining company in December 2009. Originally they were frozen at its own request when the Crafar farms deal was announced, but the HKSE has continued the suspension since the company got behind in reporting its financial results.

So if, according to Chen, Wang's business affairs should have had no bearing on Natural Dairy's application, whose fault is it that it was declined? The New Zealand media's, he fires back. All those "negative" stories.

C'mon. What about Natural Dairy's early announcement to the HKSE trumpeting that it had a $1.5 billion investment deal signed up in the Kiwi dairy industry, complete with processing plant, which turned out to be nothing more than a plan, and which lawyer Knight had to later clarify was a 10-year plan at that? What about the comedic number of changes at the Natural Dairy top table? What about Chen's directorship ban in China? What about the secrecy, the refusal of personnel to front up in New Zealand, even though the company has a senior representative, Graham Chin, based in Auckland? He was vice-chairman at the time of the application but is no longer on the board. What about the auditor who this year quit Natural Dairy's books? What about the New Zealand Serious Fraud Office inquiry?

"There have been many misunderstandings in communication," says Chen. "The government did not appreciate the importance of the project to New Zealand. It did not understand the deal. They were not ordinary people in this investment."

Pressed, he relents a little. "Our public relations have been very bad."

He says Natural Dairy would have brought added-value in New Zealand to the milk from the Crafar farms, creating jobs and tax benefits for New Zealand.

"If people buy farms and sell the [raw] milk to Fonterra, it is meaningless. There is no benefit to New Zealand." Another Chinese company, Shanghai Pengxin, now has an offer on the Crafar farms, conditional on OIO approval.

Chen confirms he was fined by the Chinese securities commission and banned from being a company director for three years until 2007 after a textile company he chaired reported interest paid by one of 12 subsidiaries as expenditure, thus inflating profit results by $HK2.1m.

Chen says the company's Hong Kong auditor quit by mutual agreement. He implies the firm was too expensive. And he notes the SFO inquiry into Natural Dairy and UBNZ transactions followed a grumpy letter to the OIO from Natural Dairy lawyers Bell Gully, noting accidentally embedded private comments seemingly prejudicial to Natural Dairy in the margins of some correspondence from the OIO.

On the churn at the top of the company, Chen and Knight say that comes with being a start-up. Life could be settling down among the 40 staff on the 67th floor.

Accounting manager of six months, ex-Deloitte staffer Kenneth Liu, seems determined to fix Natural Dairy's erratic financial reporting. He says it is normal for accounts to be filed late in Hong Kong as long as there is a "good reason". But he says the company "was not well organised". A full audit will be done by July and the full year report out in the same month, he says. It is hoped share trading can start then. Liu says he took the job because of the firm's aspirations to import pure and safe products from New Zealand.

Company secretary Abraham Yung has warmed his office chair for two months. He had been 16 years at public consumer electronics company Starlite International. He was hired to help action Natural Dairy's plan to open up to 3000 outlets in mainland China, selling New Zealand products, including consumer packs of long-life milk from a Tauranga factory founded by Wang in the name of New Zealand Milk Processing.

Knight says around 100 outlets have opened so far. Natural Dairy has a contract with the Tauranga company to supply 450 million, 250ml packs of milk a year. Chen says 120 containers were shipped to China in the past two months. Chief marketing officer of one year's tenure is Walter Shum. His background is in software marketing and he says he joined the company because it could help meet China's desperate need for safe dairy products.

Chen's business card says he is chairman of the New Zealand Chinese Business Roundtable Council and GoldMate Group. He founded the council in 2008 to facilitate business deals between the two countries. In February that year, then Trade Minister Phil Goff opened the council's offices in Auckland. Companies Office records say Goldmate was registered in 2009. Its only shareholder is the Chinese Business Roundtable Council Investments and the only director is Jack Ke En Chen, who migrated to New Zealand in 2001.

Chen regretted his lack of education in China and wanted his three children to get "a western education" and to speak English. He visited 20 countries in his quest for a new home. Canada was "too cold"; Europe "had no Chinese"; the US was "chaos" and Australia did not appeal.

He has two properties in Auckland, one is the former home of disgraced Hanover finance company co-founder and director Mark Hotchin. He is on his third try for New Zealand citizenship. The Crafar farms issue has "affected" this latest application, he says. The previous two were rejected because his English "is not good enough".

His wife and children, aged 18, 14, and 12, are New Zealand citizens, he says. The eldest attends an Auckland high school, the other children are in Hong Kong.

Clearly in inviting a New Zealand journalist to Hong Kong to meet Chen, Natural Dairy has further plans for investment in New Zealand.

No one would discuss specifics.

But to illustrate Natural Dairy's good intentions towards New Zealand, Knight volunteered that during last year's application, the company made an offer to the OIO to vest the Crafar farms in New Zealand and to lease back the land, if it would progress its application. It also offered, he says, for state-owned-enterprise Landcorp to run the farms. The OIO confirmed that in November last year Natural Dairy "raised the possibility of the Crafar farms being acquired by the Crown and leased back to Natural Dairy". "This idea was not pursued further by Natural Dairy," the OIO said.

The agency passed the proposal on to to the decision-making ministers but it "could not be advanced as Natural Dairy's application was declined on the basis that it did not meet the good character requirements of the Overseas Investment Act 2005".

It can be assumed any future investments by Natural Dairy will have to pass under the OIO's $100m threshold radar. The company will also have to resolve some issues with the HKSE: it has been given a black mark by the NZX, and it has an accounts disclosure issue. It also has some talking to do with its Chinese convertible bond investors. With the Crafar farms deal lost, Chen's wealthy connections may have to be convinced they don't need their money back.

NATURAL DAIRY (NZ) HOLDINGS

HQ: Hong Kong

Registered: Cayman Islands

Listed: Hong Kong Stock Exchange (shares suspended)

Previous name: China Jin Hui Mining

Issued shares/convertible notes: 1.8 billion

Market cap: $HK4b ($628m)

Activities: importing dairy products from NZ, retailing dairy, food and beverages in China

Andrea Fox travelled to Hong Kong as a guest of Natural Dairy.