The ongoing public and political debate surrounding the application of Australia’s foreign investment regime to investment in rural land and agri-business has been given some much needed clarity by the Treasurer’s decision to raise no objections to the participation by Shandong RuYi Scientific & Technological Group Co Ltd and Lempriere Pty Ltd in the Cubbie Group Limited asset sale process.
On 31 August, the Treasurer raised no objections to the application of Shandong RuYi Scientific & Technological Group Co Ltd (“Shandong”) and Lempriere Pty Ltd (“Lempriere”) (collectively, the Consortium) to participate in the Cubbie Group Limited asset sale process, subject to a number of undertakings given by the Consortium.
This approval under Australia’s foreign investment regime signifies a clear policy direction for investment in the rural sector by foreign investors and foreign government related entities alike.
The Treasurer welcomed the proposal by the Consortium as an opportunity to remove uncertainty regarding the Cubbie Group’s operations since the company went into voluntary administration in 2009.
In recent times, much has been written about the application of Australia’s foreign investment regime to investment in the rural sector. Given the very high threshold of $244 million for the operation of the legislation, it is rare for FIRB to have to consider applications in the sector other than through the prism of an application by a foreign government related entity (which has no threshold). Whilst the Consortium’s application included Shandong, a Chinese government related entity, the Treasurer’s decision does provide a real insight into the Government’s approach to investment in the rural sector.
Importantly, the Treasurer has obtained undertakings from the Consortium that are consistent with his approach to investment by government related entities in the resources sector. In particular, the Treasurer focused on:
- Maintaining employment and employee entitlements;
- Australian management through Lempriere;
- Corporate governance including independent Australian resident directors with relevant experience
- Compliance with all relevant rules and regulations, in particular regarding water management; and
- Annual reporting to FIRB on meeting the undertakings.
Should the Consortium be successful in its bid, Shandong has also undertaken to sell down its interest in Cubbie Group to no more than 51% within three years and ensure appropriate proportionate board presentation. This is consistent with the Treasurer’s diversity of ownership approach seen in the resources sector.
The undertakings provided by the Consortium outlined in the Treasurer’s decision provide assistance for investors proposing to embark on a rural land or agri-business investment. Whilst the Coalition’s Policy paper advocates a lower $15 million threshold it is expected that similar undertakings or conditions would be imposed on such investments under a coalition government.
The Cubbie Group decision will assist in dispelling the myth that Australia is a difficult place to invest and that it is possible for approvals to issue and be consistent with Australia’s national interest. It is positive to see that FIRB will continue to take a practical approach to such acquisitions allowing for much needed capital investment to continue in the sector.
The Senate Standing Committee on Rural Affairs and Transport is currently conducting an inquiry into the FIRB National Interest Test. The report is expected to be released on 12 September 2012. Whilst it is expected that the committee will recommend a lowering of the threshold, it is unlikely that this will alter the prospects of proposals being approved by the Treasurer on conditions similar to those in the Cubbie Group decision.