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28 December, 2016
Foreign investment has always been an important feature of Australia’s economic growth, but in the last twelve months, the messages to foreign investors looking to invest in Australia have been mixed. We look at the amended regulatory frameworks and discuss what investors should be aware of when investing in Australia.
In the last 12 months, legislative changes have been made to the foreign investment framework to simplify some parts of the process, and the monetary threshold for compulsory approvals has increased for a number of countries through free trade agreements. At the same time, application costs have been imposed, an agricultural land registry has been created and the Australian Government has shown a greater willingness to exercise its discretionary powers to reverse transactions and block investments not in the national interest.
Foreign Investment in Australia
Australia sources approximately 20% of its capital flow from overseas. The United States (AUD 860.3 billion) and United Kingdom (AUD 499.9 billion) are the largest sources of foreign investment into Australia, followed by Belgium, Japan and Singapore. By the end of 2015, Chinese investment into Australia was valued at AUD 75 billion and Indian investment was valued at AUD 12 billion.
Recent legislative changes
In December 2015, a new foreign investment framework was introduced by way of amendment to the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the introduction of the Foreign Acquisitions Takeovers Regulations 2015 (Cth). While this new regime was promoted as reducing red tape, simplifying the foreign investment process and providing greater certainty, it also saw the introduction of application fees for the first time and new offences and civil penalty provisions.
Further changes have been made to Australia’s foreign investment regime during 2016. Following the acquisition of the Port of Darwin by a Chinese-owned company, the Foreign Investment Review Board is now required to assess the sale of critical state-owned infrastructure assets to private foreign investors. Previously, such an assessment was only required when the sale was to foreign state-owned enterprises.
Foreign investment approval thresholds
In 2015, Australia finalised free trade agreements with its three largest trading partners, China, Japan and South Korea. Under the investment chapters of each of these agreements, foreign investors in most sectors (other than foreign government investors) benefit from a higher monetary threshold (of AUD 1,094 million) before the foreign investment approval process applies.
Greater focus on land holdings
In 2016 Australia has also introduced an agricultural land register which is intended to provide greater transparency about foreign investment in the agricultural sector. All land that is used, or could reasonably be used, for primary production is covered. The first annual report of the register, released in September 2016, revealed that 13.6% of all agricultural land in Australia is foreign owned, led by investors from the United Kingdom and the United States.
Investment in residential property has also been closely monitored by the current Government. During 2016 alone, the Treasurer has ordered the divestment of over 16 Australian residential properties that have been held by foreign nationals in breach of conditions specified in the foreign investment framework.
In November 2015, the Treasurer decided to prevent foreign investors purchasing the S.Kidman and Co. land portfolio on the basis that it would be contrary to Australia's national interest for a foreign person to acquire S Kidman and Co. in its current form. The land portfolio is the largest private land holding in Australia and comprises over 11 properties across four states (constituting approximately 2.5% of Australia's total agricultural land). A second foreign investment proposal led by Chinese-owned Dakang Australia Holdings Ltd was rejected in April 2016.
In August 2016, the proposed acquisition for the lease of 50.4 per cent in Ausgrid (the New South Wales owned electricity network provider) by China's State Grid and Hong Kong-owned Cheung Kong Infrastructure Holdings was rejected by the Treasurer on the basis that the transaction would be contrary to the national interest.
Strategies for foreign investors
The Treasurer continues to emphasise that the Australian Government is seeking to facilitate and grow in-bound foreign investment on terms compatible with the foreign investment framework and aligned with Australia’s national interest.
However, in light of the amended regulatory framework and recent rejections of various investment proposals, foreign investors should seek to engage with Australia’s Foreign Investment Review Board early in relation to prospective investments to ascertain any conditions or requirements that may need to be met for an investment to proceed.
For further information, please contact:
Avryl Lattin, Partner, Clyde & Co
avryl.lattin@clydeco.com
