The Australian Government recently updated its foreign
investment policy (FI Policy), which will be
applied by the Foreign Investment Review Board
(FIRB) when reviewing investment proposals. This
article highlights the key changes to the FI Policy relating to
investments by State-Owned Enterprises (SOEs).
The Government's general position in relation to SOE
investments was that "a foreign government or a related
entity" must notify FIRB and obtain prior approval before any
"direct investment" in an Australian company regardless
of the size of the investment.
This position contrasts investments permitted by non-SOE
investors, who must notify FIRB and obtain prior approval under the
Foreign Acquisitions and Takeovers Act 1975
(FATA), for investments where the non-SOE intends
to acquire an interest of 15% or more in an Australian business or
company that is valued above $231 million.
The FI Policy update clarifies, in the context of SOE
the meaning of "direct investment";
the meaning of "foreign government or a related
considerations made by FIRB when assessing SOE investment
Meaning of "Direct Investment"
Previously, under the FI Policy, investments by SOEs required
FIRB notification and prior approval regardless of the size of the
investment. Under the updated FI Policy, a direct investment is
defined to mean an investment which involves:
acquiring an interest of 10 per cent or more in an
acquiring an interest of less than 10 per cent in an enterprise
where that interest grants the investor influence or a controlling
interest in the enterprise (including preferential, special or veto
voting rights, the ability to appoint directors, and otherwise
enter into contractual agreements such as loans, provision of
services, and off take agreements);
investments which are preparatory to a takeover bid; and
the enforcement of security interests over a business'
assets or shares.
Meaning of "Foreign Governments and their Related
Before its most recent update, the FI Policy applied to
"foreign governments and their related entities" without
any clear definition of the scope of its application. Under the
updated FI Policy, "Foreign Governments and the Related
Entities" are defined to mean:
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 per cent
companies or entities that are otherwise controlled by foreign
governments, their agencies or related entities.
Removal of the "Six Principles"
The Government previously applied six principles when assessing
whether proposed investments by Foreign Governments or their
agencies were contrary to Australia's national interest.
The FI Policy update removed the six principles, and the
Australian Government will now consider whether a proposed
investment is commercial in nature or whether the investment is in
pursuit of broader political or strategic objectives potentially
contrary to Australia's national interest. In making its
determination, FIRB will measure a Foreign Government's ability
to exert actual or potential control (including through funding)
via the investor's governance arrangements.
Commercial independence and arms-length transactions are less
likely to raise national interest concerns. However, where
investment proposals are not fully arm's length and
commercially independent, FIRB will consider the following
mitigating factors when measuring whether the investment is
contrary to the national interest:
the existence of external partners or shareholders in the
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 Australian
Securities Exchange or another recognised exchange.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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