A Macquarie-run agricultural fund is taking a 49 per cent stake in the country's largest cotton irrigator, Queensland's famed Cubbie Station, as its majority Chinese owner reduces its stake in fulfilment of a foreign investment requirement.
Along with the sprawling acreage across three individual properties in the state's south-west come valuable water rights, valued at more than $106 million, according to the operator's most recent company filings.
But Macquarie will voluntarily give up some of that water at periods of river stress and is adamant its focus on the 93,700-hectare spread is for its crops rather than a potential water trade.
"The rationale for us is that we are long-term investors in large-scale Australian agricultural properties," Liz O’Leary, head of agriculture at Macquarie Infrastructure and Real Assets, told The Australian Financial Review.
"Cubbie is a premier agricultural property. We look at farm like this through the production cycle and are very confident that it meets our expectations."
In 2012, a consortium led by Chinese textile giant Shandong Ruyi paid $232 million for the then debt-laden Cubbie Station, which had been in administration for three years.
The investment by Shandong Ruyi was approved by then treasurer Wayne Swan on the condition its ownership would be reduced from 80 per cent to 51 per cent. The Chinese operator has been given extensions on that requirement, most recently last month by Treasurer Josh Frydenberg.
Businessman Roger Fletcher subsequently bought in on 20 per cent holding in the ownership and will exit his stake under the Macquarie deal while Shandong Ruyi's control falls to 51 per cent.
Macquarie has been talks with the Cubbie ownership for about two years after it was introduced to the deal by Colliers International's head of agribusiness, Rawdon Briggs.
As part of the transaction, the Macquarie-run agricultural fund and Shandong Ruyi have voluntarily agreed to contribute water to the Culgoa River and the Lower Balonne when it is most needed.
The commitment comprises a voluntary contribution of up to 50 per cent of the permitted offtake during critical periods with cap of 10 gigalitres. That is five times the amount Cubbie would be required to give up during a low-flow event.
Ms O'Leary acknowledged the commitment could affect production but said that would be offset by Cubbie's ability to farm at "optimal levels" in periods of high flow.
"Both parties have considered this arrangement as part of the economics of the deal. Because we can afford it, we both believe we should do it."
The new ownership had not sought compensation for its willingness to give up water, nor was it trying to head off potential community criticism of the farm's heavy water usage, she said.
"We put this proposition forward along with our partner. It was entirely of our own volition.
"We did it because as long-term investor we have to take into consideration the broader ecosystem in which our farms operate and the health of that ecosystem.
"That was our primary driver. If through this action we are benefiting others, that is only a good thing."
Since the 2012 acquisition, Shandong Ruyi has invested $26 million in improving the efficiency of Cubbie’s operations and spent more than $25 million acquiring and upgrading the Dirranbandi cotton ginnery.
"Our joint venture provides certainty of ownership to Cubbie," said Ruyi Australia Group chief executive Tony McKenna.
"Under the structure, the current management and operational team of Cubbie will remain unchanged and will be able to continue their good work.”
The sprawling Queensland farm extends across several properties near Dirranbandi and St George in south-west Queensland.
Cubbie’s 93,700 hectares includes 22,100 hectares of irrigated cropping fields. Cubbie Station itself is an 80,600-hectare property with 19,100 hectares of irrigated cropping fields,
The broader farm includes The Anchorage, a 12,700-hectare property, and Aspen, a 406-hectare property.