State Grid Decision
In a further positive sign for foreign investment following the recent Yancoal decision, on Friday the Treasurer announced his conditional approval of a $7.5 billion foreign investment application from State Grid Corporation of China (“State Grid”) to acquire a 19.9 per cent holding in SP AusNet and 60 per cent holding in SPI (Australia) Assets Pty Limited and SPI (Australia) Trust (trading as Jemena) (“Jemena”).
SP AusNet is a dual Australian Securities Exchange and Singapore Exchange listed energy infrastructure entity which owns and operates electricity transmission networks, electricity distribution networks and gas distribution networks in Victoria. Jemena is a private company that owns and operates electricity, gas and water assets in eastern Australia. State Grid is a Chinese state-owned enterprise and is the world’s largest electricity utility. The State Grid proposal ultimately involved the transfer of the interests from one state-owned enterprise to another.
The Treasurer approved the application on the condition that at least 50 per cent of the members to be appointed by State Grid to the Boards of SP AusNet and Jemena are Australian citizens who are ordinarily resident in Australia. The nationality-based condition imposed by Treasurer Hockey is not unusual. Previous Treasurers have imposed similar conditions on foreign investment applications both government and private based.
The decision to approve the State Grid application is further proof of the Government’s assertion that Australia is indeed “Open for Business” and will welcome foreign investment where it is not contrary to the national interest. The Treasurer’s approach is in keeping with the ongoing approval of the vast majority of applications.
The decision also confirms that the Treasurer will continue the long running practice of using conditions where appropriate to ensure that foreign investment applications are consistent with the national interest. The case by case approach in Australian foreign investment matters allows for this flexible approach to be taken ensuring investment is welcome and approvals can flow.
Appointment to the Board
The Treasurer also announced on Friday the appointment of former South Australian Liberal Member of Federal Parliament Mr Patrick Secker to the Foreign Investment Review Board (“FIRB”).
Mr Secker has been appointed to the FIRB as a part-time member for a five-year period. As a member of the FIRB, Mr Secker will assist in advising the Treasurer in relation to foreign investment applications. Appointments to the FIRB are purely within the discretion of the Treasurer. There is no legislation or guidelines that determine the establishment of the FIRB. The Foreign Acquisitions and Takeovers Act 1975 does not refer to the FIRB and the Government’s Foreign Investment Policy simply assumes that it exists.
The Treasurer explained the appointment on the basis of Mr Secker’s extensive experience in agriculture and agribusiness, noting that he has been a primary producer, agricultural retailer and company director as well as having previously represented the rural South Australian electorate of Barker as a member of Parliament.
As the Treasurer noted, Mr Secker’s appointment fulfils a commitment by the Government to expand the FIRB’s expertise in agriculture and agribusiness. It also demonstrates the Government’s willingness to listen to the agricultural sector in order to better assess the “national interest” in relation to foreign investment proposals in the agricultural sector.
Mr Secker will become the FIRB’s sixth member joining the Chairman, Mr Brian Wilson, Mr Hamish Douglass, Ms Anna Buduls, Mr Michael D’Ascenzo AO and the Executive Member Mr Jonathan Rollings (who is also the General Manager of Treasury’s Foreign Investment and Trade Policy Division).
What’s coming in the New Year
The New Year will see increased scrutiny of foreign investment in the rural sector and agribusiness as well as a new register of ownership of rural land by foreign persons.
As previously foreshadowed, the Australian Government’s proposed new thresholds in the agri sector include:
- a reduction of the monetary threshold for foreign investment in agricultural land to $15 million from $248 million (indexed annually);
- a $0 threshold for foreign investment in agricultural land once cumulative purchases of agricultural land amounting to $15 million have been reached by a particular foreign person (alone or together with associated entities);
a new threshold for foreign investment in agribusinesses where the:
- investment exceeds 15% or more in an agribusiness valued at $248 million (indexed annually); or
- investment in an agribusiness exceeds $54 million.
The Government also supports the establishment of a register of foreign ownership of rural land. The register will require that reporting the value and level of interest in Australian rural land be compulsory for foreign investors. It has been recommended to the Government that there be no minimum threshold for reporting to ensure that all foreign investment is captured in the register. It is unclear at this stage who will have access to the register and for what purpose.
Foreign investors should expect press releases to issue early in 2014 announcing the adoption of these measures. Once a press release issues, FIRB is likely to adopt the thresholds from the date of the press release and implement the thresholds through legislation at a later date (with retrospective operation).
Across the board
The general thresholds for the operation of the Foreign Acquisitions and Takeovers Act 1975 and for exemptions (including in relation to developed commercial property) are indexed annually. The indexation generally occurs in January, so foreign investors should keep an eye out for announcements to this effect early in the New Year.