Michael Hansel, Partner
Lea Fua, Associate
The Foreign and Investment Review Board (FIRB) has just released a new foreign investment policy, which sets out its approach when assessing foreign investment applications under the Foreign Acquisitions and Takeovers Act 1975. Among other things, the policy defines the term 'foreign governments and their related entities', and outlines the factors FIRB will take into account when considering if a proposed investment is contrary to Australia's national interest.
Foreign governments and their related entities
The term 'foreign governments and their related entities' is defined in the policy as including:
- a body politic of a foreign country;
- companies or other entities in which foreign governments, their agencies or related entities have more than a 15 percent interest; or
- companies or entities that are otherwise controlled by foreign governments, agencies or related entities.
All foreign governments and their related entities are required to seek FIRB approval before making a direct investment in Australia, regardless of the value of the investment. In contrast, foreign persons who are not controlled by foreign governments and their related entities must only seek FIRB approval to acquire an interest of 15 percent or more in an Australian business or corporation that is valued above AUD $231 million. US investors are subject to a higher threshold of AUD $1,004 million.
National interest considerations
Where a proposed transaction involves a foreign government or a related entity, the Australian government will consider if the investment is commercial in nature, or if the investor may be pursuing broader or political objectives that could go against Australia's national interest. This includes assessing whether the prospective investor's governance arrangements could facilitate actual or potential control by a foreign government (including through the investor's funding arrangements, such as where the investor defaults under a loan from a State-owned bank, and assets coming under the control of such banks).
Proposals from foreign government entities operating on a fully arm's length and commercial basis are less likely to raise national interest concerns.
The policy sets out a number of factors that FIRB takes into consideration when assessing the national interest considerations of a proposed foreign investment:
- National security (the extent to which the investment affects Australia's ability to protect its strategic and security interests)
- Competition (diversity of ownership is preferred within Australian industries and sectors to promote healthy competition)
- Other Australian government policies, including tax (the impact of a foreign investment proposal on Australian tax revenue)
- Impact on the economy and the community (the impact of the proposed investment on the general economy)
- Character of the investor (the extent to which the investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision)
Mitigating factors that may help determine that proposed investments are not contrary to national interest include:
- the existence of external partners or shareholders in the investment;
- the level of non-associated ownership interests;
- the governance arrangements for the investment;
- ongoing arrangements to protect Australian interests from non-commercial dealings; and
- whether the target will be, or remain, listed on the ASX or another recognised exchange.
Mining tenements
Foreign persons looking to acquire interests in mineral rights, mining leases, mining tenements or production licences need to apply for FIRB approval where the proposed transaction will provide:
- the right to occupy Australian urban land, and the term of the lease or licence (including extensions) is likely to exceed five years; or
- an interest in an arrangement involving the share of profits or income from the use of, or dealings in, Australian urban land.
For more information on FIRB and the new foreign investment policy, please contact HopgoodGanim's Corporate Advisory and Governance team.
Australia's Best Value Professional Services Firm - 2005 and 2006 BRW-St.George Client Choice Awards
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
