Key Points:

From 31 March 2016, FIRB will assess the sale of critical state-owned infrastructure assets to private foreign investors.

On 18 March 2016, in a climate where there has already been significant change to Australia's foreign investment rules, the Commonwealth Government has announced further changes to the existing regime.

From 31 March 2016, the Foreign Investment Review Board (FIRB) will assess the sale of critical state-owned infrastructure assets to private foreign investors. This is the first time that the sale of such assets will come under the microscope.

In its current form, the legislation only allows FIRB to assess the sale of critical infrastructure when these assets are sold to foreign state-owned enterprises. Now, all foreign investors will need to obtain FIRB clearance before purchasing critical state-owned infrastructure assets. These include, amongst other things, public infrastructure (airports, ports, infrastructure for public transport, gas systems and water systems), existing and proposed roads, railways, telecommunications infrastructure and nuclear facilities.

These changes have been implemented in an environment where there has already been significant change to Australia's foreign investment regime, including revised monetary thresholds for land, the introduction of an agricultural land foreign ownership register and several offences or civil penalties for breaches of the regime.

What do the foreign investment changes mean for you?

Going forward, this means that FIRB will become a relevant consideration for all foreign purchasers looking to acquire critical state-owned infrastructure assets. For foreign bidders looking to purchase critical state-owned infrastructure assets, consultation with and review by FIRB will now need to be taken into the consideration when considering the transaction timetable.

Australian State and Territory vendors of infrastructure assets will also now need to take into consideration the need for foreign investors to obtain FIRB approval for those transactions. In order to maintain competitive tension, those governments may either need to extend bid timetables (to allow approvals to be obtained during this process) or impose a condition precedent which requires the purchaser to obtain FIRB approval.

The changes will also lead to increased engagement between foreign purchasers and FIRB, as assets which were not previously subject to a formal FIRB review now will be subject to review.

Next steps

While it has been announced that these changes will be implemented through an amendment to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth), the text of these changes remains to be seen. However, the changes come into effect on 31 March 2016, so we expect to see these amendments shortly.

It is also worth keeping an eye on a number of proposed transactions in the market including the privatisation of each of Ausgrid, the Port of Melbourne and the Port of Fremantle to see how the new rules are applied to each of these proposed sales.