The Prime Minister denies a kit out of sheep for a farm in Saudi Arabia was a bribe to a Saudi businessman to get us a trade deal with the region.

The businessman was threatening to sue the Government for stopping live sheep exports to Saudi Arabia after he'd invested a lot of money in the trade.

New Zealand spent more than $11.5 million to help establish a demonstration farm in Saudi Arabia - but does not have any contractual rights to access it.

Taxpayer money was spent on the farm near Dammam, which included the air-freighting of almost 1000 breeding ewes from New Zealand.

The farm is entirely owned by businessman Sheikh Hamood Al Ali Khalaf's Al-Khalaf Group.

Mr Al Ali Khalaf's Sydney-based business partner, George Assaf, has said the farm fit-out was done to "compensate" the pair for New Zealand's ban on live sheep exports for slaughter.

The 2003 ban, implemented by the Labour Government and extended by National, had cost them hundreds of millions of dollars and the fallout was a reason for a stalled regional free trade agreement.

John Key said that was a factor, but the Government's eye was on a free trade agreement with the Gulf states which hasn't yet been delivered.

"There was no guarantee. When we did this deal we didn't say it would get us an FTA. It was just one of the factors that was there."

Winston Peters said it's a disgrace.

"This is a new low in our international relationships, and this is a multi-million dollar bribe that has been given to Saudi Arabia."

Green Party trade spokesperson James Shaw agreed, saying that it appeared our government made the payout to try to rescue the Gulf States Free Trade Agreement.

"What it looks like, is that we are using taxpayer funds to pay them off, in order to buy his compliance for the Free Trade deal to go ahead."

Foreign Minister Murray McCully attempted to turned the tables, blaming the previous Labour Government for damaging relations with Saudi Arabia by stopping live sheep exports.