A recent report has suggested that some portions of the Australian M&A market could be stifled by foreign investment restrictions.
The global M&A report from Allen & Overy said that while the Australian government has taken steps to attract foreign investment and that protectionism is on a downward trend overall, compared with Germany and the UK, Australia may be too strict and potentially scaring off investors.
While the report noted that only a small number of transactions have been blocked outright under foreign investment restrictions, a protectionist approach from the government on transactions involving agricultural land, agribusinesses and residential real estate have attracted some public scrutiny.
Allen & Overy partner Geoff Simpson, said that for the industries largely impacted by protectionism, the government has recently put in place stricter policies for foreign investment, the complexity of which may turn investors away.
“Recently, a lower approval threshold was introduced for the proposed transactions by foreign investors in agricultural land and the government has also announced plans to introduce a foreign ownership register for agricultural land,” he said. “Separately, a consultation process is underway to introduce a new screening threshold for foreign investment in agribusiness, new foreign investment applications fees and substantial fines for breach of the residential real estate foreign investment regime.”
Simpson said that the lowering of the approval thresholds, while not necessarily a bad thing, should be properly monitored. He suggested transparency would aid the legal process and that a prior indication of whether or not something will pass would further encourage investment.
“Care must be taken to ensure that a protectionist attitude does not drive away good investment or promote bad investment through avoidance activity,” he said. “The policies and objectives underpinning foreign investment rules need to be clear and make it easy to predict whether a deal is likely to be blocked or require modification. And, in some cases, approval processes and delays can also be significant concerns for investors.”
The report notes that any country’s foreign investment policy is likely to be heavily influenced by external drivers such as economic and geopolitical factors.
Simpson said that there is consensus that foreign investment benefits most industries in Australia and that the increasing number of free trade agreements is evidence of the commitment to such investment.
“Australia is very rarely a first mover when it comes to increasing regulatory restrictions,” he said. “In our experience advising on cross-border transactions, Australia’s foreign investment, takeovers and anti-trust rules are no more restrictive than other jurisdictions. With the increase in the number of FTAs in place, a larger number of foreign investors will be able to enjoy favourable treatment under Australia’s foreign investment regulations.”