Foreign state-owned businesses could escape the scrutiny of the Foreign Investment Review Board for deals worth up to $100 million, under a proposal being considered by Treasury.
Treasury estimates that about 300 deals would be waved through each year without FIRB involvement if notification were made optional.
The concession would overturn a longstanding policy that the government should scrutinise every investment in Australia, no matter how small, by companies that have a substantial shareholding from a foreign state.
A Treasury consultation paper has canvassed options for exempting state-owned enterprises from FIRB scrutiny for investments in “non-sensitive” industries, up to a value of $100m.
“This will make it voluntary to notify for low-value acquisitions which are less likely to raise sensitivities,” the Treasury paper says.
China IDs ‘fugitives’ in OzChina IDs ‘fugitives’ in Oz
The sensitive industries that would continue to have a zero threshold are media, telecommunications, transport, water and defence-related industries.
Treasury’s consultation paper does not deal with farming and the food industry, both highly sensitive for the Nationals and have their own low thresholds, but are not classified as “sensitive industries” under the FIRB rules. Changes to foreign investment legislation or regulation from the Treasury review would still have to be approved by government.
Nationals ministers, including Deputy Prime Minister Barnaby Joyce, have pushed for a ban on government-owned businesses buying agricultural property.
The review follows complaints from foreign governments that investing in Australia has become burdened by red tape and high fees since the new foreign-investment legislation was introduced in late 2015. The former Labor government strengthened guidelines on investment by state-owned companies, following manoeuvres by state-owned Chinese resources group Chinalco to buy shares in Rio Tinto in a market raid without seeking FIRB approval in late 2007. At that stage, the ban on state companies investing in Australia without approval was policy, but had not been written into legislation and there were no sanctions for disobeying. The 2015 foreign investment law made it an offence for state-owned companies to invest without permission, and imposed penalties, as well as large fees for all applications.
“Foreign government investors have voiced concerns about the degree of regulatory burden,” Treasury said.
When negotiating its free-trade agreement with Australia, China sought the same $1.1 billion threshold for its state-owned companies as the agreement offered its private companies, but was knocked back.
Government sources say they do not expect this to be reviewed in the renegotiation of the investment and services components of the China-Australia free-trade deal announced last week.
Treasury estimates that state companies would save about $9m a year in compliance costs if filing with the FIRB were optional.
Treasury says raising the threshold from zero to $100m, “may heighten concerns about whether the screening regime is adequately capturing proposals that may raise sensitivities”.
It also notes that, under some of Australia’s international trade agreements, once a concession is offered it cannot be withdrawn.
The paper, which closed for submissions yesterday, also proposes an alternative, more cautious approach of allowing state-owned companies to apply for an exemption certificate for transactions worth up to $100m. This would impose reporting requirements and set limits on the total amount that could be spent or the total percentage interest that a foreign government could gain.
Treasury says there are about 80 foreign state-owned enterprises each year making multiple investment applications that could be covered by an exemption. Although China, with 160,000 state-owned enterprises, is the most affected nation, sources say the loudest complaints have come from nations such as Singapore and Canada.
Foreign investment lawyers say many US private equity deals get caught because they rely on funding from pension funds such as the Texas Teachers Retirement System and university endowment funds, which have ultimate state ownership.
Under Australia’s foreign investment rules, any company in which state-owned investors own a combined 20 per cent or more is considered to be a state-owned enterprise. Under the existing zero threshold, a state-owned company wanting to lease additional space in an office building could have to seek FIRB approval.
The NSW government last year leased the state’s electricity distributor Ausgrid to an all-Australian consortium for more than $16bn after a bid by China’s State Grid and Hong Kong based Cheung Kong Infrastructure was blocked on security grounds. Last December, Treasurer Scott Morrison approved the sale of the Kidman cattle empire to mining magnate Gina Rinehart and a Chinese company. It was the third attempt by Chinese bidders to buy into the nation’s largest private landholder. Mrs Rinehart’s Hancock Prospecting claimed a 67 per cent stake alongside partner Shanghai CRED.