Brian Wilson, the Chairman of the Foreign Investment Review
Board (FIRB), told a Senate Committee on 16 August 2012 that FIRB
will publish guidelines to clarify requirements for FIRB approval
for investments in Australian entities by foreign state owned
ETIHAD'S ACQUISITION OF SHARES IN VIRGIN AUSTRALIA
The publication of the new guidelines is triggered by the recent
acquisition of shares in Virgin Australia by Etihad Airways. Etihad
is the national airline of the United Arab Emirates. It entered
into a 10 year strategic alliance with Virgin in August 2010.
In June this year, Etihad announced that it had acquired a 3.96%
stake in Virgin Australia on the market. Etihad did not obtain FIRB
approval before the acquisition, but merely informed FIRB as a step
prior to its subsequent successful application to FIRB for approval
to acquire 10% of Virgin.
MEANING OF "DIRECT INVESTMENT"
Under Australia's Foreign Investment Policy, all foreign
governments and their related entities should notify FIRB and get
prior approval before making a direct investment in Australia,
regardless of the value of the investment. According to the Policy,
a direct investment has the objective of establishing a strategic
long-term relationship with a target enterprise. It may allow a
significant degree of influence by the investor in the management
of the target. It is common international practice to consider an
investment of 10% or more as a direct investment. However, it is
clearly stated in the Policy that FIRB considers that interests
below 10% may also be direct investments and must also be notified
if the acquiring foreign government or related entity can use that
investment to influence or control the target.
It is possible that Etihad might have taken an interpretation
that the particular purchase did not establish a strategic
long-term relationship with Virgin (which would have made it a
direct investment), since they already had that kind of
relationship with Virgin since August 2010.
When the Treasury and FIRB were questioned on this matter by the
Senate Rural and Regional Affairs and Transport References
Committee on 16 August 2012, they acknowledged that the Policy was
a little unclear in terms of direct and portfolio investments and
could be misinterpreted.
It is worthwhile noting that Jim Murphy (Executive Director,
Markets Group, Treasury) told the Senate Committee that "For
clarity's sake, with the policy, we are now trying to explain
to everyone that if they are a state owned enterprise they should
notify FIRB of any investment in Australian entities". This
seems to go beyond a mere clarification of the meaning of direct
investment, and suggests that any investment by foreign state owned
enterprises in Australian entities will have to be notified to
FIRB. It remains to be seen whether the new guidelines will
actually reflect a change of government policy in that regard.
We can advise on FIRB approval issues and can assist foreign
investors considering making an investment in Australia to
determine whether they need foreign investment approval.
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.
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