On Friday, in a significant development, Australia announced the biggest revision of its foreign investment laws in nearly 50 years, which includes giving the government the power to force the sale of a business if it is deemed as a threat to national security.
Faced with an ever increasing need to balance its economy and national security, Australia’s Treasurer Josh Frydenberg said all foreign investors will face heightened scrutiny when bidding for sensitive assets; this will be regardless of the size of the deal and whether the buyer is private or state-owned.
“Technology has been evolving and our geopolitical climate has become more complex,” said Frydenberg in Canberra. “In fact, the world over, governments are seeing foreign investment being used for strategic objectives not purely commercial ones.”
In a significant change that has been introduced, the Treasurer has the power to vary or impose conditions on a deal or force a divestment even after the deal has been approved by the Foreign Investment and Review Board (FIRB).
This power however will not be applied with retrospective effect, said a document from the Treasury.
Australian Prime Minister Scott Morrison also stated, that the government will allocate an additional $50 million for the enforcement of the rules. According to a spokesman from the Treasury, some of the extra resources would go to the Australian Security Intelligence Organisation (ASIO) as well as Department of Home Affairs, the Taxation Office, and the Treasury.
Frydenberg did not spell out which sectors would be subject to the national security test and come under FIRB’s scrutiny.
Its very likely that energy, telecommunications, utilities, defence supply chains and businesses that collect, store and own data deemed critical to Australia’s national security and defence, will come under greater scrutiny.
According to Scott Phillips, partner at M&A law firm Arnold Bloch Leibler, it is crucial that the categories of sectors be carefully defined.
“While sensible on the face of it, these changes carry a very real risk of discouraging much needed, national interest investment as Australia heads into our first recession in 29 years,” said Phillips.
The government is planning on releasing a draft of the proposed changes by next month with legislative debate and implementation planned for January 1, 2021.
Although Frydenberg did not single out any particular country while announcing the overhaul, earlier the Chinese government had raised objections with regard to changes in Australia’s foreign investment rules.
Public misgivings over the sale of the Port of Darwin in 2016 to Chinese company Landbridge led to new rules requiring FIRB approval for critical infrastructure deals.
This April, the FIRB had blocked two proposed investments by Chinese companies in Australian listed mining companies, in a move that underscores a strategic shift in the government’s thinking.
($1 = 1.4395 Australian dollars)