THE new Turnbull government is facing its first big test on foreign investment as Chinese bidders circle Australia's largest landholder, S. Kidman & Co, which owns cattle stations in the top-secret Woomera rocket range.
The advisory firm running the Kidman sales process has confirmed national security concerns have been considered, after the previous Labor government blocked a Chinese mining investment in the Woomera area.
Two Chinese bidders have been shorted-listed for the properties, which are set to fetch more than $325 million and span 100,000 square kilometres across South Australia, Western Australia, the Northern Territory and Queensland.
In a surprise move, the Key government on Thursday rejected Shanghai Pengxin's bid for a 13,800 hectare sheep and cattle farm in New Zealand's North Island, saying the benefits of the deal were "not substantial enough".
The decision went against the advice of the country's foreign investment regulator.
Pengxin's listed subsidiary, Dakang Farming, which has a market cap of $3.4 billion, is believed to be interested in the sales of both Kidman Properties and Consolidated Pastoral Company.
Ernst & Young's partner for mergers and acquisitions, Don Manifold, who is running the Kidman sale process, confirmed it had spoken with Australia's Department of Defence.
"Anna Creek, which is in the Woomera rocket-testing range, will have some sensitivities," Mr Manifold said.
"There are three zones including green, yellow and red, which is the most important. Anna Creek has a small part within the Green zone." He said he did not foresee the issue becoming a problem for the sale.
Mr Manifold said the firm had provided ample information on the property holdings to government authorities including the Department of Defence and Indigenous groups.
"We have worked with and spoken to each of the state and federal governments and there have been no significant issues raised."
Other sources have suggested that carve-outs could be applied around sensitive areas if necessary, but pointed out the federal government had blocked deals on national security grounds previously.
The Department of Defence last night said the current owners of Anna Creek had permission to use the Woomera Prohibited Area but any new owner would need permission and would be subject to a national security assessment.
"Any subsequent purchaser that requires access to the WPA will require permission from the Department," the statement said.
"Any application for permission to access the WPA will require an assessment based on national security and may result in access being granted subject to conditions.
In 2009, then treasurer Wayne Swan cited the Woomera Prohibited Area as the reason for blocking Chinese state-owned firm Minmetals' from buying parts of Oz Minerals.
The company's Prominent Hill mine was in the so-called "red area" around Woomera.
The Woomera Prohibited Area is the world's largest land weapons testing range, comprising some 122,188 square kilometres in north-west South Australia.
Since that time China has pursued an increasingly assertive foreign policy, taken a more muscular approach to territorial disputes and ramped up its electronic espionage activities.
This has made foreign governments increasingly suspicious of China's offshore investments and led to a "take no chances" approach on investments that had a national security dimension.
Along with Pengxin, the Chinese bidders mooted to be on the shortlist for the Kidman properties include a consortium comprising central-government-linked developer Shanghai CRED and two private companies; financial services group Zendai and textile, property and logistics conglomerate Shanshan Group.
Nationals Leader Warren Truss said last night it "would be disappointing if there are no Australian buyers and such an historic chain of properties were to fall into foreign ownership".
"The government has put in place new measures to ensure that acquisitions of Australian grazing properties are properly assessed to ensure that they are not contrary to the national interest," Mr Truss said.
WITH ANGUS GRIGG