The release of the Discussion Paper follows ongoing media speculation about a potential tightening of Australia's foreign investment regulatory regime should the Coalition win government at the next Federal Election (due in 2013), and consultation by a Coalition working group.
In the Discussion Paper, the Coalition has affirmed that it supports the Foreign Investment Review Board (the FIRB) and the Free Trade Agreements to which Australia is a signatory, and stated that it unambiguously welcomes and supports foreign investment. The Coalition has also set out in the Discussion Paper the background relating to the regulation of foreign investment in Australia (and the 'national interest' test), made comparisons between Australia's foreign investment regime and the regimes in other countries, and outlined a range of issues and concerns that were raised during the working group's consultation process. The issues and concerns referred to in the Discussion Paper include that:
- due to the existing thresholds for FIRB to assess foreign acquisitions being too high, many purchases of agribusinesses, and virtually all sales of agricultural land, are never reviewed by FIRB against the national interest test; and
- there is a lack of reliable, robust and insightful data on the extent of foreign acquisitions in Australia, particularly of agricultural land.
It is also noted in the Discussion Paper that counter concerns were raised that too low a threshold for FIRB assessment of agricultural sector purchases could contribute to financing difficulties for Australian agricultural producers. The Discussion Paper states that if there is an overly low threshold, this may discourage foreign investment and ultimately lead to banks lowering their assessments of the value of producers' collateral.
In response to the issues and concerns raised, the following proposals are among those set out in the Discussion Paper:
- Developing and implementing a national register of foreign ownership of real property in cooperation with state land titles offices;
- Developing, through the Australian Securities and Investments Commission, a national register of foreign ownership of businesses valued above an appropriate threshold (eg AUD$15 million);
- Instituting direct reporting requirements for foreign owners at the time of transfer of a business;
- Requiring foreign persons to inform either a Commonwealth register or State-based registers of foreign ownership of any future acquisition within 90 days;
- Inclusion of foreign acquisitions of agricultural land in the list of sensitive sectors of the economy that attract a heightened degree of scrutiny from FIRB, but not automatic review;
- FIRB consideration of any proposed foreign acquisition of agricultural land valued at AUD$15 million or more (cumulative), except where the acquirer is from a country that has a Free Trade Agreement with Australia in which case the terms of that agreement will apply;
- FIRB consideration of any proposed foreign acquisition of an agribusiness where the investment exceeds AUD$53 million or represents a stake of 15 per cent or more in an agribusiness which is valued at AUD$244 million (whichever is smaller);
- Retention of the uncodified national interest test – the test being uncodified so as to allow ministerial discretion;
- Requiring any foreign applicant subject to the national interest test to disclose any direct or indirect ownership or direct source of influence by a foreign government, such as a state-owned enterprise owning shares in a subsidiary related to the business operations of the applicant; and
- Increasing the membership of the FIRB board to seven members, from the present four or five, in order to further broaden the board's spread of business experience, and requiring that there be at least one individual on the board with agricultural sector expertise.
The Coalition also indicates that the "zero trigger" for the purchase of land by an overseas government or a sovereign wealth fund will continue to apply. The Discussion Paper does not contain any proposal to change the existing requirements to the effect that any foreign investment by a state owned enterprise or sovereign wealth fund must be notified to FIRB.
If all proposals were implemented in the form described above, some of the key implications would be that:
- A greater number of foreign companies or persons investing in the Australian agricultural sector, or in agricultural land, would need to seek FIRB approval before making their investments. This would have cost and timing implications for a number of agribusiness transactions which may currently not need to be notified to FIRB.
For example, currently acquisitions of agricultural land (to the extent it constitutes rural land) generally only require FIRB approval where they form part of an agribusiness valued at more than AUD$244 million in which a foreign investor is acquiring an interest of 15% or more, provided the relevant foreign investor is not required to notify FIRB on the basis that it is considered to be a foreign government investor such as a state owned enterprise or sovereign wealth fund. However, if the threshold outlined in the Discussion Paper applied, approval would be required:
- for acquisitions of agricultural land by foreign investors where that land is valued at AUD$15 million or more (unless a Free Trade Agreement applies); or
- for acquisitions of an Australian agribusiness if the investment exceeded $53 million;
- Foreign owners of Australian land and businesses would also potentially be subject to additional direct reporting requirements if transferring a business and obligations to inform a Commonwealth or State-based register(s) when undertaking future acquisitions.
Submissions on the proposals from interested parties are invited by 31 October 2012 and are to be made to the office of the Shadow Treasurer, Joe Hockey.
If you have any questions in relation to the Discussion Paper, or would like assistance preparing a submission, please contact one of the partners or special counsel listed below, each of who is a member of Holding Redlich's Agribusiness and Rural Industries Group.
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.