As of 10:30pm AEST on Sunday, 29 March 2020, the monetary thresholds for foreign investment proposals covered by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and its associated regulations have been reduced to zero.  In addition, the Foreign Investment Review Board (FIRB) will be working with investors to extend statutory deadlines for applications for up to six months.

Implications for foreign investment

Key implications are:

• More foreign investments will require FIRB approval, hampering capital raising efforts in an already difficult capital raising environment.  However, provided that there are no changes to the percentage thresholds applicable to transactions caught under FATA, these changes will not alter the position of foreign investment banks acting as underwriters on Australian public ECM deals.
• There has been no mention of any relief on fees, which will increase transaction costs for foreign investments.
• Although many foreign-to-foreign takeovers are strictly speaking “voluntary” approvals (ie, they are significant actions that are not notifiable actions – see below description), it is market practice to seek approval, particularly where merger clearance is being sought in Australia anyway.  There may be an increase in parties not seeking approval as a result of the above changes.
• Applications will need to demonstrate why they are urgent and how they support Australian businesses and jobs.

Notifiable actions

Under Australia’s foreign investment rules, the Treasurer has the power to make a range of orders in relation to certain foreign investment proposals that he considers to be contrary to the national interest (including blocking or unwinding such transactions or imposing conditions on the way they are implemented) – these are called significant actions.  Notifiable actions are a subset of significant actions that must be notified – failure to do so is itself an offence – and cannot proceed until a statement of no objection is received in relation to them.  Other significant actions do not strictly speaking have to be notified, but doing so and obtaining a notice of no objection cuts off the Treasurer’s power. 

Common notifiable actions include:

•  the acquisition by a foreign person of 20% or more of an interest in an Australian entity, valued above the then current monetary thresholds (previously, A$275m);
• the acquisition by a foreign person of an interest in land, valued above the then current monetary thresholds (ranging from A$0 to A$275m depending on the kind of land and who the investor is);
• the acquisition by a foreign person of an interest of 10% or more (and in some cases below that) in an agribusiness, where the value of the acquirer’s past and current investments in the target exceed the then current monetary thresholds (previously, A$60m);
• the acquisition by a foreign person of an interest of 5% or more in a company, unit trust or business that wholly or partly carries on an Australian media business, regardless of value; and
• a range of transactions by foreign government investors, including:
  • the acquisition by a foreign government investor of 10% or more (and in some cases below that) of an interest in an Australian entity or business, regardless of value, or the start of a new business in Australia by a foreign government investor – tracing rules apply this to offshore transactions also;
  • starting an Australian business; and
  • acquiring a legal or equitable interest in a tenement or an interest of at least 10% in securities in a mining, production or exploration entity.

Common significant actions that are not notifiable actions include:

• foreign to foreign takeovers where the target has an Australian entity valued above the then current monetary thresholds (previously, A$275m);
• acquisitions of Australian businesses valued above the then current monetary thresholds, where there is a change of control (previously, A$275m).

What’s changed to foreign invesment?

The announcement last night means that, effective immediately, the monetary threshold for the above actions is zero.  While this was always the case for entities that are or are deemed to be foreign government investors under FATA and its associated regulations, this now applies to all foreign persons.

There is nothing in the announcement which suggests there are proposed to be any changes to the percentage thresholds that go to determine whether a transaction is a notifiable transaction or a significant transaction. It will be important to confirm this once the revised regulations are released as any lowering of these would have much broader impacts.

What about the treaty thresholds?

Investors from certain countries (notably, the US and China) have the benefit of higher treaty thresholds (currently up to A$1192m for many transactions).  The announced change appears to apply uniformly to investors from all countries. 

However, it is important to note that it is rare that foreign investors are able to rely on the treaty thresholds, as they only apply in very limited circumstances and, importantly, do not apply if the acquirer uses an Australian bidco.

Timing

FATA allows applicants to seek extensions to the normal statutory time frame of 30 days.  In practice, FIRB “invites” the applicant to request an extension, with the only other alternative being that the Treasurer issues an interim stop order for up to 90 days.  FIRB will now be seeking extensions of up to six months on all applications.

The Government has stated that it will give priority to urgent applications that protect and support Australian business and Australian jobs.