A nearly $300 million acquisition of major building contractor Probuild has fallen through, after Treasurer Josh Frydenberg said he would reject China State Construction Engineering Corporation's bid for the Australia-based and South African-owned company.
National security concerns linked to state-owned China State Construction Engineering Corporation's connections to the Chinese defence industry is understood to be a key reason for the Treasurer not to approve the foreign investment.
Probuild's construction of sensitive buildings including the Victorian Police headquarters and the Melbourne headquarters of biotech company CSL, which is producing COVID-19 vaccines, were also factors in the rejection, The Australian Financial Review understands.
The state-owned Chinese company withdrew its offer after Mr Frydenberg declared the transaction a risk to national security and contrary to Australia's interest, on the grounds that Probuild was a significant player in a sector that was critical to the country's economic and social wellbeing.
Probuild executive chairman Simon Gray slammed the rejection, saying Probuild was less exposed to potentially significant infrastructure work such as rail, airports and tunnels than rival John Holland, acquired by China Communications Construction Company for $1 billion in 2015.
"It’s more politics than it is anything else," Mr Gray told the Financial Review late on Monday. "No one can give us real reason why we’re a national security risk. It's a joke."
Acting Prime Minister Michael McCormack said the Treasurer would always act in Australia's national interest on foreign investment decisions, but he declined to comment on Mr Frydenberg's "rebuff".
The Treasurer wrote to the parties before Christmas informing them that he intended not to approve the deal.
The parties withdrew the transaction from the FIRB, before a formal knock back.
A spokesman for Mr Frydenberg said: “The government does not comment on the application of the foreign investment screening arrangements as they apply or could apply to particular cases.”
It is the latest Chinese foreign investment to be rejected by the government.
In April last year Mr Frydenberg rejected China Mengniu Dairy Co's proposed $600 million acquisition of Lion Dairy & Drinks, even though the FIRB and Treasury supported the deal.
He also officially rejected Hong Kong-based CK Group's $13 billion bid for Australia's east coast gas pipeline owner APA Group in November 2018.
Rejection of the Probuild deal, after eight months' consideration by the FIRB, will further inflame a relationship between Australia and China that has already been stretched paper-thin as Beijing has targeted of barley, beef, wine and coal, as well as other exports including lobster and copper, after criticising the country's early call for an international inquiry into the origins of the coronavirus pandemic.
Probuild has been 88 per cent owned by Johannesburg-listed commercial builder Wilson Bayly Holmes-Ovcon (WBHO) since 2002. Over 90 per cent of Probuild's work in the past has typically been for private-sector clients, in residential, retail, hospitality and commercial office work, Mr Gray said.
It has done important public construction work, such as the $600 million-plus Cbus Property- and Keppel REIT-owned Victoria Police headquarters at 311 Spencer Street in Melbourne. It is building PDG's two-tower, 70,000sq m Elizabeth North project in Melbourne that that will form the headquarters of biotech company CSL.
While the police project was already completed, Probuild would still have access to potentially sensitive blueprints and information.
But it has also failed to win work - Mr Gray said Probuild was a front-runner but was "cut out" of the chance to build a new $800 million vaccine lab at Melbourne's Tullamarine airport in favour of Belgian-owned BESIX Watpac - and he questioned why the acquisition of Probuild could not have gone ahead without conditions around its involvement in sensitive work.
"They can always put conditions on the purchase to say ‘You don’t have an option in these markets'," he said. "They just rejected it. That is outrageous."
Mr Gray remains a shareholder in the company that WBHO secured control over in 2002 for what he said was "less than $20 million". The failure of the deal to go through was disappointing for shareholders, but the bigger disappointment was that the company wouldn't go into the hands of new owners with new ideas.
"I’m still a shareholder," Mr Gray said. "But I’m not playing in this as an aggrieved shareholder. The bigger issue is where are the South Africans going to take the business?"
The deal that would have seen the Chinese company pay $200 million for Probuild and close to another $100 million for the cash it had on hand was unlikely to be resurrected, he said.
"It's done," Mr Gray said. "People move on."
WBHO, which in late October told shareholders the proposed sale was "well progressed", said on Monday afternoon South African time that the sale had fallen through.
"WBHO remains optimistic about the fundamentals of Probuild and its prospects in the Australian market, and continues to assess all potential opportunities for Probuild to maximise shareholder value and the value and potential of Probuild," BusinessDay, that country's main business daily, reported.