Ultrafast Fibre overseas sale raises questions

Ultrafast Fibre’s owners have agreed to sell their shares in the business to First State Investments, an Australian asset management company.

The business was owned by electricity distributors, who bid and won the UFB contracts over a decade ago. WEL Networks Limited owned 85 percent and Waipa Networks Limited controlled the other 15 percent.

UFF runs fibre networks in parts of the Central North Island including Hamilton, Tauranga, Whanganui and New Plymouth. The network runs past around 237,000 premises.

First State paid $854 million for the business.

Ultrafast Fibre needed OIO approval

The deal is subject to approval from the Overseas Investment Office.

This is where the story could get interesting.

An overseas organisation needs OIO approval to buy a sensitive New Zealand asset. In most cases sensitive means either land or a business that is worth more than $100 million. There’s usually an exception for Australian buyers.

However, a fibre network isn’t only sensitive. It is also a strategic asset of national importance.

Different rules for different fibre companies

Chorus, the largest fibre company is subject to a 10 percent Kiwi Share restriction which limits foreign investment in the business.

In 2012 the government had to decide to waive the restriction when AMP Capital moved to take a larger stake in the business.

There was something of political fuss when this happened, yet the amount of Chorus under discussion was less than the amount of UFF that’s now up for sale.

While UFF is much smaller than Chorus, it is New Zealand’s second largest fibre company. It has a wholesale monopoly in its area and covers roughly 12 percent of the homes able to connect to UFB.

So, if roughly five percent of Chorus triggered political alarm bells, 100 percent of UFF could come under scrutiny.

Exquisite timing

First State Investments is lucky that most politicians are focused elsewhere at the moment. Either that, or it timed its acquisition knowing it could slip under the radar.

If UFF was anything other than a technology company you could expect, at least, New Zealand First to take an interest in this sale.

Of course this wouldn’t be the first time overseas interests have owned strategic New Zealand telecommunications assets. Yet it seems odd that Chorus ran into problems selling a few percent to AMP while Ultrafast Fibre can be sold in its entirety.