Australia's foreign investment rules consist of:
- the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and its associated regulations; and
- Australia's Foreign Investment Policy (the Policy), which clarifies some aspects of the legislation and imposes additional obligations which do not have the force of law but with which overseas investors are expected to comply.
Subject to certain exceptions (such as acquisitions by state-owned entities or acquisitions of interests in Australian urban land), only transactions where the value of the target exceeds the standard monetary threshold are notifiable under these rules. As of 1 January 2012, the standard monetary threshold was increased to $244 million ($1062 million for acquisitions by US persons investing in non-sensitive sectors). The threshold applying to acquisitions of non-heritage listed, developed commercial real estate was increased to $53 million ($1062 million for acquisitions by US persons).
In addition, recent controversy around acquisitions by foreign persons of agricultural land in Australia has once again put Australian foreign investment rules into the spotlight, potentially impacting M&A activity in both the agribusiness and mining sectors.
Acquisitions of agricultural land by state-owned enterprises, sovereign wealth funds or other foreign government entities and by other foreign persons require approval if the transaction exceeds the standard $244 million threshold ($1062 million for US investors). The latest Policy, issued in January 2012, includes a new policy statement regarding investments in Australian agriculture which reiterates this approach.
However, a perceived increase in foreign investment in Australian agricultural land has sparked debate as to whether these rules are sufficient in the current climate, where Australian agricultural land appears to be targeted for acquisition by countries seeking to ensure their future food security, and by foreign resources companies seeking to expand their mining operations (some mining companies have acquired rural land for purposes of expansion, and these acquisitions are not necessarily caught under the current rules).
Criticism has been levelled at the Government on two fronts:
- agricultural land is not currently scrutinised as a special class of acquisition under Australia's foreign investment rules; and
- even where acquisitions of agricultural land require approval under current rules, the existing national interest test does not adequately address issues of food security.
On 6 July 2011, a Senate inquiry was launched to investigate these concerns. The findings of the inquiry are due on 14 March 2012. The inquiry coincides with the introduction of the Foreign Acquisitions Amendment (Agricultural Land) Bill 2010 (Cth) (the Bill) which was introduced into Federal Parliament on 16 June 2011. The Bill seeks to change the way in which foreign investment in Australian agricultural land is dealt with under FATA by:
- amending the current monetary threshold to a spatial threshold, whereby any foreign acquisition of agricultural land greater than five hectares would be subject to review by FIRB;
- expanding the national interest test as it applies to acquisitions of agricultural land and enshrining it into the legislation; and
- requiring the Treasurer to publish various details of Australian agricultural land applications including the status of current applications.
While it is unlikely that this particular Bill will be passed (particularly in light of a negative recommendation by the Senate Economics Legislation Committee, which concluded that there has not been a significant change in foreign ownership of Australian agricultural businesses and land over the last two decades), the pressure to make some changes continues.
If approval thresholds are tightened, this would in the first instance increase the number of agribusiness acquisitions that would be subject to FIRB approval. In addition, although many mining acquisitions are already subject to FIRB approval (either because the acquirer is state-owned or because the land in question is urban land), additional mining acquisitions would be caught should restrictions on acquisitions of agricultural land be tightened.
Even if no substantive changes to Australia's foreign investment rules are made, it is possible that the controversy will impact the way that FIRB applies the existing national interest test, particularly for agribusiness acquisitions, resulting in stricter scrutiny of those transactions which require approval under the current regime.