- The Treasurer recently announced increased FIRB notification thresholds, including the introduction of one single $219 million notification threshold (indexed annually) to replace the general $100 million asset threshold and certain other existing thresholds
- Existing requirements that private investors notify the government when establishing a new business in Australia valued above $10 million have been abolished
- General threshold for investments by US Investors (in non-prescribed sensitive sectors) to remain at $953 million (indexed annually)
On 4 August 2009, the Treasurer Wayne Swan announced proposed reforms to Australia’s foreign investment screening framework by increasing certain FIRB monetary notification thresholds.
The key reform will be to increase the general $100 million asset notification threshold to $219 million. The $200 million offshore takeover threshold, and the $110 million threshold for investments by US Investors in prescribed sensitive sectors will also be replaced by the $219 million threshold, such that private foreign investment in Australian businesses below $219 million will be able to proceed without review.
Currently, proposals whereby a foreign person acquires or increases a ‘substantial interest’ (ie 15 per cent individually or 40 per cent in aggregate with other foreign persons) in the shares of an Australian corporation or acquires a controlling interest in the assets of an Australian business where either the gross assets of the Australian corporation are above $100 million or the transaction values the Australian corporation above $100 million need to be notified to FIRB for its approval. A higher $200 million offshore takeover threshold applies in respect of foreign-toforeign acquisitions where the Australian assets of the target foreign company represent less than 50 per cent of the target foreign company’s total global assets.
The proposed reforms will replace these thresholds with one single threshold of $219 million.
The other significant change is that the $219 million threshold amount will be indexed each year from 1 January 2010 against the GDP price deflator to ‘keep pace with inflation and to prevent foreign investment screening from becoming more restrictive over time’. The GDP price deflator is a price index calculated as the ratio of nominal GDP to real GDP and is used as an indicator of the economy’s average price level. The amount of $219 million will be first indexed against the GDP price deflator calculated for the 2008–09 financial year, which is due to be published by the Australian Bureau of Statistics in October. By way of example, if the $219 million was indexed against the GDP price deflator for the 2007-08 financial year, this amount would be indexed up to $229 million.
The government also plans to abolish the existing requirement that private investors notify the government when establishing a new business in Australia valued above $10 million. This is consistent with the fact that not one new business application has been rejected for more than a decade.
Not surprisingly, the government’s position in relation to investments by foreign governments has not softened, with direct investments by foreign government and their agencies (including state-owned enterprises and sovereign wealth funds) of Australian businesses still requiring FIRB approval irrespective of the value of the business or the transaction value pursuant to Australia’s Foreign Investment Policy.
The special screening arrangements for media sector proposals will also continue to apply. The general US Investor threshold of $953 million that currently applies for acquisitions by US Investors in non-sensitive sectors will remain unchanged but will continue to be indexed on an annual basis.
The proposed amendments will be welcomed by foreign investors as they will streamline Australia’s foreign investment regime and compliance costs and improve Australia’s competitiveness as a place to invest. The increased thresholds will also reduce the amount of proposals the government has to consider which do not raise any national interest concerns. Based on 2008-09 figures, the increased thresholds are expected to reduce the amount of FIRB applications by around 20 per cent.
The Treasurer said the amendments will ‘support Australian jobs and economic growth, and position Australia for a more competitive recovery beyond the global recession’ and ‘ensure that the government does not become unnecessarily involved in uncontroversial business transactions’.
The government aims to introduce amendments to the Foreign Acquisitions and Takeovers Regulations 1989 to implement these reforms in September 2009. Until that time, the current FIRB thresholds will continue to apply.