Both the Federal Opposition and Foreign Investment Review Board (FIRB) have recently indicated a desire to extend the reach of the review of foreign investment proposals in Australia's mining, oil & gas and agribusiness sectors. This is yet another example of governments around Australia, of all persuasions, focusing the regulatory spotlight on these sectors. Investors need to be mindful of these actual and potential changes when planning to make investments or risk fines, transactions being blocked or unwound and other penalties.
FIRB requirements – a refresher
The Federal Government regulates foreign investment primarily through the FIRB which administers the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and Federal Government Foreign Investment Policy (Policy). The Australian Federal Treasurer is responsible for the ultimate approval or refusal of applications for proposed investments by "foreign persons" and will assess such investments against the "national interest". The Policy provides guidance as to the issues the Treasurer will consider when making this judgment.
Generally, a foreign person or corporation is required to notify FIRB where it proposes to acquire:
- 15% or more of an Australian corporation through an acquisition of shares (either shares of that company or of a parent, whether Australian or foreign) – or, in respect of two or more foreign persons, 40% or more of the shares of that corporation, where the proposal values that corporation to be above A$244 million (or A$1062 million for US investors in non-sensitive sectors)
- a similar substantial interest in an existing Australian business where the value of its gross assets, or where the proposal values it to be above, A$244 million (or A$1062 million for US investors in non-sensitive sectors)
- an interest in any Australian urban land or an Australian land corporation (subject to exemptions). This is irrespective of value and is the test of particular relevance to the mining and oil & gas sectors.
FIRB notification is also required for "direct investments" by foreign governments or their "related entities", regardless of value. "Direct investments" are those which have the objective of establishing a lasting interest in an asset (including mining and petroleum titles) or strategic long term relationship with an Australian corporation. It is common practice that such an objective will be exhibited by an investment of 10% or more. However, interests less than this threshold may be caught where the interest can be used to influence or control the company (for example, by acquiring preferential voting rights, the right to appoint directors, or rights to enter into certain contractual agreements such as off-take agreements).
"Related entities" of foreign governments are those entities in which governments, their agencies and related entities, hold greater than 15% or otherwise have a controlling interest.
Failure to notify FIRB and obtain approval from the Treasurer is an offence under the FATA resulting in fines and/or imprisonment and may result in the Treasurer unwinding the transaction if subsequently found to not be in the national interest.
Specific relevance to mining and oil & gas
In the mining and oil & gas sectors, land subject of a mining or petroleum title will, generally be considered "urban land". "Urban land" refers to all Australian real property (including the seabed within Australia's exclusive economic zone) other than land which used wholly or exclusively for the business of primary production (predominantly farming and does not include mining or production of petroleum). As such, acquisition of an interest in such land will require compulsory notification to FIRB and approval by the Treasurer.
What titles constitute an "interest in Australian urban land"?
The Policy was updated earlier this year to extend the scope of what is considered to be an "interest in urban land".
Previously, tenements relating to the exploratory stage (such as an exploration licence or a petroleum prospecting licence) were not considered to constitute such an interest on the basis that they do not give the holder a right to exclusively occupy land and do not, of themselves, confer a right to the relevant mineral or petroleum produced from that land.
Since January 2012, the Policy was updated to indicate that notification is required for acquisitions of all types of tenements (including prospecting and exploration licences/permits and retention leases):
- which provide for a right to occupy Australian urban land
- where the term (including extensions) is likely to exceed five years.
Most early stage mining and oil & gas tenements issued in different jurisdictions in Australia will, with extensions, be greater than this five year limit. While it is debatable whether such tenements grant a "right to occupy" the land the subject of the tenement, FIRB has demonstrated an unwillingness to distinguish between a "right of entry" more typically associated with exploration titles and this "right to occupy". In these circumstances and given the consequences of failure to notify, most foreign acquirers of such tenements have opted to notify.
Federal Opposition – potential future policies
Last month, the Federal Opposition released a "Discussion Paper on Foreign Investment in Australian Agricultural Land and Agribusiness". Proposed policies included:
- establishing a register of foreign ownership of both real property and Australian businesses valued at above an appropriate threshold (eg A$15 million) and requiring foreign investors to notify the register of new acquisitions 90 days in advance of that acquisition
- reducing the notification threshold for an acquisition of rural land from A$244 million proposed as currently imposed, to A$15 million
- equiring all foreign investor applicants disclose any direct or indirect ownership or direct source of influence by foreign governments and state owned enterprises
- to include an express reference to the following issues when applying the national interest test to proposed foreign investments:
- the need to ensure maintenance of competitive pressures and "fair" prices in international markets for domestic products
- ensuring no strategic loss of control in relation to international marketing or purchase of domestic products
- ensuring no loss of quality-assurance or taxation of domestic products.
Submissions on these and other proposals in the Discussion Paper are due by 31 October 2012.
While focused on agricultural land and agribusiness only, there is a strong likelihood that, if adopted, these policy proposals will have an important bearing on any national interest assessment of foreign investment affecting all Australian land, including land upon which current and future resources projects are developed.
An alarming trend
The Policy amendment, this Discussion Paper and the current heated debate regarding the FIRB approved acquisition by the Shandong Ruyi/Lempriere consortium of Cubbie Group Limited, demonstrates that scrutiny of foreign investment proposals affecting Australian land is rising.
In such an environment, meticulous planning and forethought is required to ensure that your investment in resources projects is not subject to unwelcome delays and risk.
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.