Crackdown on foreign investment in Australia – what does it mean?

Australian Federal Treasurer Scott Morrison has announced a crackdown on sales of agricultural and energy assets in a move perceived as bowing to political pressure over foreign investment, particularly from China, as well as perceived political interference from Beijing.

The changes include:

• Ringfencing farm assets valued at $15 million or more for Australian buyers before opening to bids from foreign investors;
• Handing the Foreign Investment Review Board (FIRB), backed by the new Home Affairs department, new powers to investigate proposed electricity assets to ensure no one company controls ‘too much’ of Australia’s electricity network.

While the repositioning does not exclude foreign investment in these sectors, the changes put foreign commercial interests at a distinct disadvantage compared with their Australian competitors.  It is likely foreign buyers will now seek local joint-venture partners as a potential vehicle for asset purchases in the increasingly popular agriculture sector.

The reforms also codifies the refusal on national security grounds of Chinese and Hong Kong bids for the S. Kidman & Co Ltd pastoral company and energy asset Ausgrid. It will be interesting to see how the FIRB and elected decision makers treat the mooted sale of Sydney’s $2.3 billion desalination plant and the Port of Portland in Victoria.

Another development that has spooked private equity in Australia is a Federal Court ruling that throws into question the tax treatment of limited partnerships, the preferred vehicle of global fund managers when investing in this market. Unless the Australian Tax Office mounts a successful appeal, millions of offshore investors will have to lodge tax returns, a move that the peak industry body, the Australian Venture Capital and Private Equity Association (AVCAL), says will dampen investment interest in this market.

As in other parts of the world, political risk associated with cross border opportunities  involving Australian assets continues to rise. There is a growing  need for prospective inbound investors to obtain solid intelligence and nuanced policy counsel from advisers working at the nexus between commercial imperatives and the political landscape.

Statecraft is uniquely placed to deliver in this space. For a confidential discussion, contact Michael Priebe, Managing Partner on +61 2 8080 0060 or at michael.priebe@statecraft.com.au or Director, CT Johnson at ct.johnson@statecraft.com.au.