New Zealand: Overseas investment in New Zealand

New Zealand M&A - trends and insights

New Zealand is an attractive destination for foreign direct investment, despite having the seventh most restrictive screening regime in the OECD.

Obtaining consent for a business purchase not involving "sensitive land" is relatively straightforward although potential investors must satisfy an investor test that assesses their character, relevant business experience, acumen and financial commitment to the investment.

Acquisition of sensitive land and fishing quota requires the consent of two Ministers and, in addition to the investor test, a "benefits test" which examines whether the investment will result in benefits to New Zealand.

Increasingly, the OIO requires a detailed business plan to substantiate these benefits, including hard data on planned capital investment, job creation, increased productivity and export receipts. Enforceable commitments to proceed with promised plans will typically be a condition of consent.

Satisfaction of the benefits test may require identification of a hypothetical New Zealand purchaser (even if no actual New Zealand bidder exists) and consideration of what benefits might reasonably arise from ownership of the assets by this hypothetical New Zealand purchaser.

This "counterfactual" analysis represents an evolution in analytical approach that adds additional complexity to the consent process and poses particular challenges when acquiring mature assets where there is limited scope to lift productivity, deploy new technology or create new jobs.

In our experience these challenges can generally be met, but can require a considerable commitment of time and effort on the part of intending investors and their management teams.

The application process can be frustratingly time-consuming, reflecting a high number of applications and limited resources in the Overseas Investment Office (OIO). At no stage in the 13 months to the end of January 2015 did the OIO have fewer than 60 consent applications in progress, and at its peak – in October – it had 73. These volumes are challenging the regime's capacity.

Although there are no statutory time frames for decision-making, the OIO's target is to have 90% of business and land acquisition proposals assessed within 50 working days of active consideration. It achieved a hit rate of only 76% in the second half of 2014. In our experience, processing of complex applications can take closer to 100 working days, when time for correspondence with the OIO and Ministerial sign-off is factored in.

The 2014 Briefing to the Incoming Minister (BIM) noted that timing of decisions could have personal implications for various applicants, including funding arrangements.

Reform of the screening regime is always contentious, particularly if the direction of the reform is toward liberalisation, but most of the emotion in the debate is around land and other natural resources. It is our view that the New Zealand public would take a much more pragmatic attitude to the treatment of business assets and listed companies, and that reform in this area is overdue and could yield real dividends.

An example would be to treat NZX listed companies with no more than 49% foreign ownership or control as New Zealand companies for the purpose of the Overseas Investment Act. This has been on the government's capital markets Business Growth Agenda for years now so it is disappointing that it is still on the 'to do' list.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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Pip England
Roger Wallis
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