Australia to streamline foreign investment approvals

All foreign government entities must receive approval before acquiring 10% or more of an Australian business, including those that do so as passive investors in private equity funds. What changed in late 2015 – as part of what were described as the most significant changes to Australia’s foreign investment framework in 40 years – was specific screening requirements were incorporated into the legislative framework.

As a result, the notification system became more stringent. Foreign Investment Review Board (FIRB) approval was necessary regardless of the dollar value of the deal, and the 30-day guaranteed processing period was dropped. Deals were not necessarily getting blocked, but it was taking up to three months to get approvals, and application fees and compliance costs were rising.

A government consultation paper published this month found that only a small percentage of deals that necessitated notification raised national interest concerns resulting in rejection or the imposition of conditions. As such, “this results in a higher than desirable regulatory impost on business proposals that are of low sensitivity and have to be notified.”

The proposed solution is the introduction of pre-approval exemption certificates for low sensitivity deals whereby the foreign investor would offer an overview of the sorts of transactions it is likely to pursue and then would not have to make notifications for them on an individual basis. The government would retain the right to retroactively cancel deals or impose restrictions on national interest grounds.

Exemption certificates would be subject to reporting requirements and certain limitations, for example in terms of total spend or percentage interest. The government is also considering a A$100 million per transaction limit for actions covered by the certificates.

Yasser El-Ansary, CEO of the Australian Private Equity & Venture Capital Association (AVCAL), praised the move, noting that since December 2015 many small transactions have required FIRB approval despite posing minimal national interest concerns. “If the right mechanism can be put in place, the proposed reforms could have a real and positive impact on our economy,” he said in a statement.

Private equity investment in Australia reached a record $35.8 billion, but 80% of the capital went into three infrastructure deals, according to AVCJ Research. Strip out the $1 billion-plus transactions and the total was $7.2 billion – across approximately 90 transactions – up from $5.6 billion in 2015.

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• Topics
• Australasia
• Regulation
• Buyouts
• Australia
• AVCAL