Australian Treasurer Josh Frydenberg has announced his intention to reject Hong Kong based CK Group's proposed A$13 billion acquisition of APA Group on the basis that the deal is contrary to the national interest. This is the first rejection of a foreign investment proposal in a large scale infrastructure asset since the establishment of the Australian Critical Infrastructure Centre.

ASX listed APA Group owns and operates approximately 15,000 kilometres of natural gas pipelines in Australia, making it the largest gas transmission system owner in Australia. The majority of natural gas pipelines in Australia are currently foreign owned, held by a small handful of players. CK Group obtained the Foreign Investment Review Board's (FIRB) approval last year for its A$7.4 billion acquisition of Duet Group a Western Australian focused electricity and gas distribution company.

Mr Frydenberg said in a statement that he formed the preliminary view "on the grounds that it would result in an undue concentration of foreign ownership by a single company group in our most significant gas transmission business."

It is possible that the government's concerns could have been mitigated had CK Group joined with an Australian investor (such as an Australian superannuation/pension fund) in its proposed acquisition of the APA Group.

Notwithstanding this decision, we note that the Australian government's policy is to encourage foreign direct investment into Australian infrastructure projects and particularly into greenfield development.

Tips for a successful FIRB Strategy

In light of the decision, foreign investors into Australia are advised to carefully consider whether any national interest or competition sensitivities exist and take appropriate action in respect of proposed or pending FIRB applications.

For investments in critical infrastructure or sensitive assets, we emphasise that foreign persons should take time to develop an appropriate strategy for engaging FIRB to mitigate the risk of an adverse decision.

We suggest that the strategy include:

  1. Engage with FIRB pre-application;
  2. For sensitive assets or critical infrastructure – consider joining with an Australian investor to invest;
  3. Understand the Australian political dynamics;
  4. Identify any sensitivities associated with a particular asset (for example, critical energy infrastructure/networks, port access, water rights, national security, food security);
  5. Develop conditions or undertakings on assets where national interest sensitivities exist.

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