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Australia tightens investment rules on foreign takeovers

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Via Financial Times

Australia has temporarily tightened its rules on foreign takeovers on concerns that strategic assets could be sold off cheaply as a result of the coronavirus crisis.

The move follows warnings from the country’s backbench MPs that distressed companies in the aviation, freight and health sectors could become vulnerable to buyouts by state-owned enterprises in authoritarian regimes including China. It comes on the heels of a similar warning from the EU last week. 

Josh Frydenberg, Australia’s Treasurer, said on Monday that all foreign takeover and investment proposals would now be scrutinised by the foreign investment review board, in a measure intended to protect national interests. Previously, Canberra did not examine most overseas takeovers of private companies unless they were worth more than A$1.1bn.

“These are extraordinary times and we have seen the value of Australian companies, indeed companies right around the world, be severely diminished because of the coronavirus and we don’t want predatory behaviour that is not in the national interest occurring,” said Mr Frydenberg. He denied that the measures were aimed at China.

The temporary changes to regulations will apply to all new overseas investment proposals as well as those currently in process. The government has also extended the timeframe for reviewing deals from 30 days to six months.

“Cross-border transactions in strategic sectors such as healthcare product manufacturing may encounter more scrutiny, face a prolonged approval process and could potentially be blocked if seen as being against the Australian national interest at this highly sensitive and volatile time,” said Kate Jefferson, corporate partner at law firm Baker McKenzie.

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Last week, Andrew Hastie, a government MP who chairs the parliament’s intelligence and security committee, warned that authoritarian states would look to “snap up distressed businesses and assets” critical to global supply chains.

Concerns regarding foreign takeovers of companies whose valuations have been hit by the coronavirus outbreak have become a global issue.

Ursula von der Leyen, European Commission president, last week urged EU states to protect critical companies from foreign takeovers that “could undermine . . . security or public order”.

Richard McGregor, an analyst at Lowy Institute, said the Australian rules appeared to target Beijing’s state-owned enterprises but would also ensnare investors from other regions.

“Vultures come in many forms and I think this will end up applying to lots more companies than just those from China,” Mr McGregor added.

Chinese investment in strategic sectors has become an increasingly sensitive matter in the west amid concerns over Chinese President Xi Jinping’s global ambitions.

Some analysts have speculated that Beijing will emerge stronger from coronavirus given its success so far in preventing the spread of the outbreak, which originated in Wuhan, and the severe damage the pandemic has wrought on the US and other parts of the global economy.

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