australian foreign investment review · we trust you will enjoy the second edition of the...

AUSTRALIAN FOREIGN INVESTMENT REVIEW

IN THIS ISSUE02 Cutting red tape for corporate restructures Brendan Earle

04 Updated FIRB Policy - Impact for foreign government investors

Belinda Fan, Paul Tempone and Broadie Same

06 FIRB Report: Real estate and agriculture outshine resources

Matthew FitzGerald

07 Australian mining tenements: Issues for SOE investors

Philippa Stone, Belinda Robilliard and Tom Bowes

09 Top 3 tips for dealing with the FIRB Mark Crean

10 New addition to our expert FIRB team Belinda Robilliard

11 Trans-Tasman investment made easier Philippa Stone and Belinda Robilliard

12 Herbert Smith Freehills credentials

ISSUE 2 MARCH 2013

HERBERT SMITH FREEHILLS 01AUSTRALIAN FOREIGN INVESTMENT REVIEW

WELCOME

We are delighted to welcome you to the second edition of Herbert Smith Freehills’ Australian Foreign Investment Review.

In this edition, we cover a broad range of important issues. Brendan Earle examines anomalies where internal restructures require FIRB approval.

On the FIRB front, Belinda Fan provides an update on FIRB policy, with Matthew FitzGerald analysing FIRB’s recently released 2011-12 Annual Report.

Mark Crean provides his top tips for dealing with foreign investment applications and Philippa Stone writes on issues relevant to SOE’s in mining acquisitions.

We trust you will enjoy the second edition of the Australian Foreign Investment Review.

ABOUT HERBERT SMITH FREEHILLSHerbert Smith Freehills has one of Asia-Pacific’s leading M&A legal practices, as well as the expertise and track record to help make any international investment in Australian assets a smooth and efficient process.

Our foreign investment experience includes navigating some of Australia’s largest deals through the foreign investment review process.

We combine our transactional expertise with industry sector experience. We are acknowledged leaders in a number of global sectors, including energy, mining and infrastructure, and technology, media and telecommunications.

Tony DamianPartnerHerbert Smith FreehillsT +61 2 9225 [email protected]

Matthew FitzGerald PartnerHerbert Smith FreehillsT +61 7 3258 [email protected]

HERBERT SMITH FREEHILLS02 AUSTRALIAN FOREIGN INVESTMENT REVIEW

Corporate restructures and the FATA

Many large foreign corporates own significant businesses in Australia and have traded here for decades.

These groups trade in many jurisdictions throughout the world. A conventional corporate structure will see the Australian business owned by a regional holding company, often but not always located in Europe or Asia.

The reasons for corporate restructures are varied, but the mechanical steps often involve:

a direct transfer of shares in an Australian company from one foreign company to another;

an indirect transfer of shares in an Australian company via the transfer of a foreign holding company to another foreign company within the same group;

a share issue by an Australian company to a foreign company within the same group; or

a dividend or capital return by the foreign shareholder of an Australian company, the consideration for which is satisfied by the transfer of shares in an Australian company to a foreign company within the same group.

Typically, corporate actions like those mentioned:

involve transfers of shares rather than assets to reduce the cost of the exercise, as asset transfers can require transfers of staff, licences or contracts and often attract stamp duty;

have no practical bearing on either the ultimate holding company or the Australian business. Sometimes the project will involve

new internal debt funding for the Australian business. Directors' duties and Australia's thin capitalisation rules provide adequate regulatory oversight in this context without overlaying an additional national interest test;

are multi-jurisdictional, in that the steps that involve, or occur above the level of, the Australian group are a small part of a larger project made complex by the need to reconcile tax, accounting, company law and commercial considerations in many jurisdictions with different legal systems.

Managing this complexity means certainty of outcomes is not only valued, but essential.

Therefore, whether the transaction falls within section 18 of the FATA and may be voluntarily notified and subject to a national interest test, or section 26 which requires mandatory notification, is largely irrelevant as the client will seek approval as a matter of course. The potential global consequences of a divestment order after the transaction has been implemented are too dire to contemplate.

The application to the FIRB absorbs case officer resources, management time for the applicant, incurs external legal costs and cannot be completed in less than about 40 days. While the time period can usually be managed, the question that recurs is: what is the point of this?

It is possible to view the monetary thresholds as an indirect exemption mechanism because acquisitions of companies valued below those thresholds are exempt from sections 18 and 26. However, the thresholds do not assist in many cases.

Similarly, the exemption for a rights issue is useful, but it is too narrow to assist if a foreign company within the same group wishes to acquire a substantial interest in the Australian company.

Global perspective

In our experience advising on multi-jurisdictional corporate restructures, including those involving key Australian trading partners such as the United States, United Kingdom, New Zealand, Singapore and Canada, Australia’s foreign investment rules are more restrictive than those jurisdictions.

For example, even where jurisdictions typically have foreign investment laws of general application, indirect ownership changes do not trigger approval requirements, exemptions apply for corporate reconstructions, or requirements to notify exist but the risk of transactions being unwound is low.

CUTTING RED TAPE FOR CORPORATE RESTRUCTURES

From time to time, foreign corporates with Australian assets will conduct internal restructuring within the international group, with no practical impact on the ultimate holding company or the Australian assets

Typically, these steps require the approval of the Foreign Investment Review Board (FIRB), or the need for certainty means voluntary notification is pursued as a matter of course

The Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) should be amended to cut red tape by exempting corporate restructures from its scope

Brendan EarlePartnerHerbert Smith FreehillsT +61 3 9288 1783 [email protected]


Scoping a corporate reconstruction exemption

The red tape to be addressed is the need (whether statutory or practical) for approval where internal corporate actions occur at or below the level of the ultimate parent company of an Australian company.

In principle, section 13A (exempt dealings) could be amended to provide that sections 18 and 26 not apply to an exempt transaction. The exemption would need careful drafting but could be framed as follows:

If a foreign person listed on a stock exchange, or a company or trust it directly or indirectly controls, acquires or subscribes for shares in a corporation which, immediately before the acquisition or issue of shares, the foreign person directly or indirectly controls, then:

a. the acquisition or subscription of the shares; and

b. the ceasing of a foreign person controlled by the foreign person to hold shares in the corporation as a result of the acquisition,

is an exempt transaction.

Each of the 4 example restructure steps described earlier would be exempt transactions, irrespective of the value of the Australian company.

There is no reason in principle why the exemption should require the foreign person in ultimate control of the group to be listed on a stock exchange, but this could be added if thought fit to narrow the scope of the exemption. It would also be possible to require that the entity making a direct or indirect acquisition of shares in the Australian company be a wholly owned subsidiary of the foreign person at the top of the ownership chain.

Other possible refinements include:

extending the exemption to asset transfers;

excluding corporations operating in prescribed sensitive sectors from the scope of the exemption; or

for a transitional period, requiring persons who avail themselves of the exemption to notify the FIRB so use of the exemption is visible. However, if the goal is to reduce red tape, a requirement like this should be subject to a sunset date.

For more information, please contact Brendan Earle at [email protected]


Direct investments by foreign government investors

What hasn’t changed? Foreign government investors must obtain FIRB approval before making a ‘direct investment’ in Australia, regardless of value.

Investments of 10% or more are regarded as direct investments.

There are certain investments that the FIRB will deem to be direct investments (regardless of the 10% rule).

What has changed?The FIRB has made some adjustments to the category of deemed direct investments, being those investments of less than 10% which the FIRB considers to be a direct investment and therefore requiring approval.

Do ‘portfolio investments’ below 10% need approval?Although not written into Australia’s Foreign Investment Policy (the Policy) it has long been understood that a direct investment can be distinguished from a ‘portfolio investment’ which does not give the investor any control over, or create any strategic relationship with, the target. In our experience with the FIRB, a portfolio investment of less than 10% which does not otherwise fit within the definition of a direct investment has not required FIRB approval.

Based on comments from senior FIRB and Treasury officials following State-owned Etihad Airways’ decision to not seek FIRB approval when it initially took a 3.96% stake in Virgin Australia last year,1 there were some concerns that the FIRB was going to update its Policy to require that any investment by foreign

government investors would require approval. Thankfully, this has not been the approach in these Policy amendments. The door remains open for foreign government investors to undertake pure portfolio investments without first seeking FIRB approval (provided the investments do not trigger other FIRB approval requirements such as the real estate approval requirements).

Changes to address the Etihad and Virgin transactionUnder the new Policy, an investment of less than 10% will now be deemed to be a direct investment if the investment builds or maintains a strategic or long-term relationship with the target (as opposed to establishing a strategic or long-term relationship under the previous Policy). This shift in policy can be seen as a direct response by the FIRB to a perceived ambiguity in its previous Policy highlighted in the Etihad and Virgin transaction. In that case, Etihad already had a 10 year strategic relationship with Virgin through a codeshare agreement at the time it acquired the 3.96% stake, so Etihad argued (under the previous Policy) that it was not acquiring a direct investment as it had already ‘established’ a strategic interest. The amended definition of ‘direct investment’ would capture such a transaction as one which builds a strategic or long-term relationship.

Pre-bid acquisitionsThe FIRB has also deleted the requirement that any ‘investments preparatory to a takeover bid’ (i.e. pre-bid acquisitions) are deemed to be direct investments. However, this has effectively been replaced by a new rule that deems an investor to be acquiring a direct investment where it is ‘building a strategic

stake in the target’ which will catch any pre-bid acquisitions. Whilst the FIRB has not provided any guidance on what transactions will involve ‘building a strategic stake’, it is possible that it may cover more than just pre-bid acquisitions and extend to any investments that give the foreign government investor influence or control, or are otherwise acquired with ‘strategic’ objectives in mind, such as blocking stakes to prevent others from making successful takeover bids or to otherwise protect its interests as a minority shareholder.

Relaxation of the policy for foreign government owned lenders

Under the previous Policy, a foreign government investor was required to obtain FIRB approval to enforce a security over an entity’s Australian business or assets. Our experience has been that in practice, foreign government owned lenders have preferred to seek upfront approval for both the grant and enforcement of the security to mitigate the risk of committing funds to the borrower but potentially not being able to enforce the security if FIRB approval was not obtained at the time of enforcement. Our experience has been that the FIRB was generally willing to grant approval in these circumstances notwithstanding its general Policy that transactions (in this case, the enforcement of the security) must occur within 12 months of the grant of its approval.

The new Policy now includes a money lending exemption which provides that foreign government investors who are regulated by the Australian Prudential Regulation Authority (APRA) as Authorised Deposit Taking Institutions (ADIs)2 do not need to obtain FIRB

UPDATED FIRB POLICy -IMPACTS FOR FOREIGN GOVERNMENT INVESTORS

Changes to the meaning of a ‘direct investment’ which will impact on the circumstances when foreign government investors are required to obtain FIRB approvalChanges that affect foreign government owned lenders (including a new money lending exemption for foreign government owned ADIs who are regulated by APRA)Confirmation of the higher monetary notification thresholds for New Zealand investors which are in line with the higher thresholds available to US investors

Belinda FanPartner Herbert Smith FreehillsT +61 3 9288 1368 [email protected]


approval when they take or seek to enforce a security over an asset as part of a ‘lending agreement’3. However, approval will be required where the security is enforced and the ADI gains control over an asset the subject of the security and retains it for more than 12 months.

Whilst on its face this provides some relief for the foreign government related banks, building societies and credit unions which have opened branches in Australia, it is yet to be seen whether the 12 month time limit will provide sufficient comfort to the relevant foreign government APRA regulated ADIs or whether they will still seek upfront approval to mitigate the risk that they cannot dispose the asset within 12 months of enforcement, or if it is possible that they may wish to retain an equity interest in the asset (through a debt to equity swap) as part of their enforcement strategy. More importantly, it will be interesting to see whether the FIRB will still be willing to consider applications for the approval of the enforcement of the security upfront. If the FIRB is not willing to do this, then the new money lending exemption may in fact have an adverse impact on foreign government lenders that want certainty around how it can enforce its security.

For foreign government lenders which are not APRA regulated ADIs there has also been a relaxation of the policy so that FIRB approval is now only required where the lender retains an interest of 10% or more following the enforcement of the security (as discussed above, previously approval was required for any enforcement). As is the case with the approach that APRA regulated ADIs may take to the money lending exemption, it is possible that foreign government investors who are non-APRA regulated ADIs may still want to seek upfront FIRB approval for the enforcement of the security to mitigate any risk of being prevented from enforcing the security in the manner they may wish, given that the circumstances surrounding an enforcement (including what equity share the lender may ultimately hold following an enforcement) is relatively uncertain at the time of providing funding.

Changes to the definition of foreign government investor

The definition of a ‘foreign government investor’ has been clarified so that an entity is now considered a foreign government investor if governments, their agencies or related entities:

from a single foreign country have an aggregate interest (directly or indirectly) of 15% or more; or

from more than one foreign country have an aggregate interest (directly or indirectly) of 40% or more; or

otherwise controls or could control the entity, including control through an associate of such government, agency or related entity.

This is now more closely aligned to the definition of a ‘foreign person’ which applies to private investors under the FATA. It also removes previous doubt under the Policy that an entity could be a foreign government investor if it had government owned shareholders from several different countries holding an aggregate stake of greater than 15% in circumstances where no individual foreign government shareholder holds more than a 15% interest.

As was the case under the old Policy, an entity will be a foreign government investor if it is otherwise ‘controlled’ by foreign governments and their agencies. The new Policy now extends this test to entities that could be controlled by associates of foreign governments and their agencies, including entities controlled as part of a controlling group. ‘Associate’ is defined in the FATA. Based on that definition, the new ‘foreign government investor’ definition now includes any entity which is not related to a foreign government but is accustomed or obliged to act in accordance with the direction of that foreign government’s agency or related entities (whether formally or informally).

For those entities caught by the expanded definition of ‘foreign government investor’ it is worth noting that the Policy’s guidance on the factors relevant to a review of the proposals by foreign government investors remains substantially the same. For entities not wholly owned by foreign government, the Treasurer will continue to take into consideration the size, nature and composition of any non-government interests in the ownership. Factors such as the existence of external partners or shareholders and the commercial basis of the proposal will continue to be the focus in reviewing whether the proposal is contrary to the national interest.

No changes to the national interest test

Against the backdrop of the Senate Standing Committee on Rural and Regional Affairs and Transport still conducting its inquiry into FIRB’s national interest test (with its report due by 15 May 2013) it is not surprising that there has been no change to the matters that FIRB consider when assessing the national interest.

Higher thresholds for New Zealand investors

From 1 March 2013, New Zealand investors will be treated in the same way as US investors and will receive the benefit of the higher thresholds before notification and approval is required. For more information please see Philippa’s Stone article on page 11, Trans-Tasman Investment Made Easier.

This article was written by Belinda Fan, Partner, Paul Tempone, Senior Assocaite and Brodie Same, Solicitor, Melbourne.

1. More information on this acquisition and FIRB’s comments at the time are can be found here.

2. The register of ADIs regulated by APRA can be found at http://www.apra.gov.au/adi/Pages/adilist.aspx.

3. A lending agreement is an agreement entered into in good faith in the ordinary course of carrying on a business of lending money. It does not include an agreement dealing with any matter unrelated to the carrying on of a lending business, such as one that allows a degree of influence or control over the borrower, their business activities or assets (other than the usual terms for such a security).

For more information, please contact Belinda Fan at [email protected]


FIRB annual report highlights

The FIRB’s 2011-12 annual report was released on 20 December 2012 and the total value of proposed investment fell by 3.4% from A$176.7 billion in 2010-11 to A$170.7 billion. This was despite the number of approved proposals increasing from 10,293 to 10,703. The value of proposed investment (and the number of approved proposals) was underpinned by a strong increase in real estate approvals.

The United States (A$36.6 billion) was again the largest source country for approved proposed investment. Other major source countries were the United Kingdom (A$20.3 billion), China (A$16.2 billion), Japan (A$13.9 billion) and Canada (A$8.9 billion). This is the fourth consecutive year that China has been ranked in the top three sources of proposed investment. Japan ousted India from the top five sources of investment.

Real estate dominates

In real estate, approved proposed investment was A$59.1 billion, compared with A$41.5 billion in 2010-11. The increase was attributable to investments in commercial real estate. The real estate sector was the largest destination by value, reversing a trend from the previous 4 years.

The real estate sector recorded 10,118 approvals and all proposals that were rejected by the FIRB (13 compared to 43 in the previous year) related to real estate.

In our view, the significance of the decrease in resource investment should not be overstated. Excluding real estate applications, mineral exploration and development applications accounted for around 46% of the value of approvals. Further, although the value of proposed investment in the mineral exploration and development sector decreased from A$54.9 billion to A$51.7 billion, the number of approved proposals actually increased slightly from 222 in 2010-11 to 241 in 2011-12.

Focus on agriculture

The annual report noted that media and community interest in foreign investment in agricultural land (and associated businesses) continued to be strong in 2011-12. Following the release last year of its Policy Statement on Foreign Investment in Agriculture, the FIRB is assisting a working group to develop a register of foreign ownership of agricultural land and associated transparency measures.

Proposed investment in the agricultural, forestry and fishing sector increased by value from A$1.4 billion in 2010-11 to A$3.6 billion in 2011-12. Similarly, the number of proposals increased from 17 to 49. Over the last 5 years, the average level of foreign investment in the agricultural sector has been just over A$2.5 billion.

Although these figures may support the increased scrutiny, in our view foreign investment in the sector should be kept in context. The value of investment in agriculture

and related industries represents around 2% of the total value of approved investment in 2011-12 and the FIRB has noted that investment proposals in the sector are inherently irregular. This means that the data can be skewed by large transactions with several competing bidders.

FIRB REPORT: REAL ESTATE AND AGRICULTURAL OUTSHINE RESOURCES

Real estate passed mineral exploration and development in 2011-12 as the largest industry sector by value of approvalsMedia and community interest in foreign investment in agricultural land continued to be a major focusProposed investment in the agriculture, forestry and fishing sector increased by both value and number of proposals


For more information, please contact Matthew FitzGerald at [email protected]


The process of obtaining FIRB approval for Australian acquisitions by foreign entities is generally well understood.

However, some uncertainty has arisen recently in relation to the acquisition and development of mining tenements, particularly where the acquirer is a foreign state owned entity (SOE). This is partly because of evolving policy pronouncements by the FIRB, and partly because of a divergence between the Policy and the FATA.

A particular concern is the current requirement under the Policy for an SOE acquirer to seek approval not only when acquiring an exploration tenement but also later when applying for a mining lease to enable development of the tenement into a mine.

Acquisitions of mining tenements require notification

The FATA regulates acquisitions of ‘interests’ in ‘Australian urban land’ – that is, Australian land other than ‘Australian rural land’ (being land that is used wholly and exclusively for carrying on a business of primary production). Acquisitions of interests in Australian rural land are only regulated under the Policy, as outlined below, and potentially under the general business and company acquisition provisions of the FATA.

An ‘interest in Australian urban land’ includes ‘an interest as lessee or licensee in a lease or licence giving rights to occupy Australian urban land where the term of the lease or licence (including any extension) is reasonably likely, at the time the interest is acquired, to exceed 5 years’.

This generally:

does not include mineral exploration permits or licences which have a term of 5 years or less; but

includes mining licences, or mining leases, which generally confer more extensive access rights to the underlying land (which is generally Australian urban land, and have a longer term reflecting expected mine life).

‘Interests in Australian urban land’ also include shares in Australian urban land corporations or units in Australian urban land trusts, essentially corporations or trusts more than 50% of the value of whose assets is represented by Australian urban land.

Notification requirements relating to mining tenements

Notification and approval under the FATA is generally required for any acquisition of an ‘interest in Australian urban land’ unless an exception applies.

Therefore acquisitions of mining licences or mining leases will generally need to be notified, as will acquisitions of any interest in a company or trust whose main assets are mining licences or mining leases (Mining Entity), unless an exception applies:

An important exception exempts acquisitions of interests in Australian urban land from a Commonwealth, a State or Territory, or a local governing body – this means that direct acquisitions of mining tenements from State governments (including the grant of a mining lease following exploration under an exploration

permit) will generally not require FIRB notification and approval.

Other exceptions are available, including in relation to acquisitions of mining tenements worth less than A$54 million which have been developed into an operational mine (and are therefore considered non-residential commercial land), and acquisitions of less than 15% of certain ASX-listed or otherwise publicly held Mining Entities.

In addition to the specific Australian urban land requirements, other general business and company acquisition notification and approval provisions of the FATA can also apply. For example, in the rarer case where land that is the subject of a mining licence or mining lease is Australian rural land, or where mining assets are exploration permits which do not qualify as interests in land, the general business and company acquisition notification threshold of A$248 million applies.

However, only notifications made under the FATA enjoy these notification thresholds and the benefit of the exceptions discussed above. As such, SOE’s that are required to notify under the Policy as discussed below (sometimes in addition to the FATA) often face more onerous requirements.

AUSTRALIAN MINING TENEMENTS:ISSUES FOR SOE INVESTORS

Foreign private investment in Australian mining tenements may or may not require FIRB approval, depending on the type of tenement acquired and the availability of various thresholds and exceptions - however, foreign SOEs require approval to acquire any interest in an Australian prospecting, exploration, mining or production tenementSOEs which acquire exploration tenements will also require a second stage FIRB approval when later applying for a mining lease to enable development of the tenement into a mineHowever, in practice, SOEs, with their advisers, can seek a dialogue with the FIRB about future development proposals to obtain some measure of comfort

Philippa StonePartnerHerbert Smith FreehillsT +61 2 9225 [email protected]


‘Two stage’ approval process for SOEs

The Policy states that foreign governments and their related entities need to notify the FIRB and obtain prior approval to start a new business or to acquire an interest in land, including any interest in a prospecting, exploration, mining or production tenement. This will be the case even if notification and approval would not be required under the FATA – for example, where only an exploration permit (or a company whose only mining / land assets are exploration permits and whose assets fall beneath the A$248 million general threshold) is being acquired.

If the exploration permit is later converted into a mining or production lease, a further acquisition of Australian urban land may occur and a second notification would be required.

This presents a risk for investment in exploration projects by SOEs, as their right to convert exploration investment into productive mining activities is contingent on a future administrative decision by the FIRB.

The review of the initial notification by the FIRB may be straightforward as the exploration activities on their own are less likely than mining developments to raise public interest concerns. There is a danger in assuming that this ‘Stage 1’ approval represents a green light for a future mining project as the second round notification is likely to receive far greater scrutiny.

On the other hand, FIRB approval will only be one of the various regulatory approvals required when the decision is made to apply for a mining licence. At that point the SOE (and its co-investors) will also need to obtain environmental and development approvals from State government departments, as well as the mining licence approval itself. Commonwealth environmental approval may also be required for significant projects.

The upshot is that a SOE needs to consider both present and future FIRB and public interest factors as part of its decision to invest in, or establish, a mining exploration enterprise, even where the investment is at a very early stage of exploration. A SOE cannot rely on initial FIRB approval for the exploration phase, as a second stage approval is required. However, in practice, a SOE with its advisers can seek a dialogue with the FIRB about its future development proposals to obtain some measure of comfort.

This article was written by Philippa Stone, Partner, Belinda Robilliard, Solicitor, and Tom Bowes, Solicitor, Sydney.

For more information, please contact Philippa Stone at [email protected]


Tip 1. National interest priorities change over time and may be influenced by political considerations

Foreign investment proposals are assessed against the national interest on a case-by-case basis. The national interest test is not defined in the FATA. This is intentional so that this concept will be interpreted and applied in a flexible manner.1 The original drafters would have seemed to have achieved this goal - the national interest test is conceptually broad. As noted by the current Chair of the FIRB, Mr Brian Wilson, the national interest test encompasses 'economic circumstances, community attitudes, geopolitics, and a whole gamut of things.'2

Brief information on the factors the Government typically considers in assessing a proposal are included in the Policy. Further guidance has also been recently provided by the FIRB in the context of the Senate Committee’s Inquiry into the Foreign Investment Review Board National Interest Test. A proposal involving a criminal organisation from a particular country, almost regardless of the economic benefits they might bring, was provided as an example of a proposal that would probably be regarded as being contrary to the national interest. Similarly, a proposal 'that might, on a stand-alone basis, be a positive economic development, but which damaged Australia's market credibility around the world, its general market reputation in a particular commodity or its market position in relation to a particular commodity…may not be in the national interest.'

Since the FIRB's functions are advisory only - it is the Treasurer or his delegate that is the decision maker - the national interest test may also reflect, to varying degrees, the political aspirations of the Government of the day. As a result, it is possible that a foreign investment proposal that was previously determined to be contrary to the national interest, could well be approved by a different Treasurer in different political circumstances (or vice versa).

Through our repeated dealings with the FIRB, we have observed a number of trends regarding the national interest priorities of the current Government. These trends include an emphasis on corporate governance, particularly in relation to investments by SOEs, and an emphasis on ensuring that an investment does not have an adverse impact upon employment opportunities for Australia. We anticipate that revenue considerations will grow in prominence as a national interest criterion on account of the prevailing fiscal climate and recent addition of two members to the FIRB with strong tax credentials.

Tip 2. Be prepared for the FIRB to seek conditions or undertakings

The power to impose conditions is activated where a proposal is notified under the FATA and the Treasurer is satisfied that the proposed acquisition would be contrary to the national interest.3 In contrast, the process of the FIRB receiving undertakings from parties in respect of a proposal is not formally recognised in the FATA. As such, undertakings are generally applied by the FIRB (although not exclusively so) in respect of proposals notified under the Policy.

Over the past three years we have observed a growing and intensive debate regarding the appropriateness of the policy settings for the screening of particular forms of investment as well as an attendant growth in the number of conditions and undertakings being attached to FIRB approvals.

The imposition of conditions and undertakings takes extra time for approval to be finalised. Accordingly, anticipating possible national interest concerns from the FIRB’s perspective early on, as well as contemplating how these can be addressed in a commercially acceptable way, can be useful in complex and sensitive cases. Such preparation provides the foundation for ensuring that the process of negotiating and drafting the content of conditions and undertakings with the FIRB can occur as quickly as possible in the event that this is required.

1. See Second Reading Speech for the Foreign Takeovers Bill 1975 (Cth), House of Representatives, Hansard, 22 May 1975, page 2678.

2. See: Glenda Korporal, ‘New FIRB boss keen to lift lid on agency’, The Australian, 12 May 2012, accessible at: http://www.theaustralian.com.au/business/financial-services/new-firb-boss-keen-to-lift-lid-on-agency/story-fn91wd6x-1226353377917; and Senate Rural and Regional Affairs and Transport References Committee’s Inquiry into the Foreign Investment Review Board National Interest Test, Transcript of Public Hearing Thursday, 16 August 2012.

3. Section 25(1A) of the FATA.

TOP 3 TIPSFOR DEALING WITH THE FIRB

In our previous edition of Herbert Smith Freehills’ Australian Foreign Investment Review we promised to share our top three tips for dealing with the FIRB

Mark CreanPartnerHerbert Smith FreehillsT +61 2 9225 [email protected]


Prior to joining Herbert Smith Freehills, Belinda was a member of the FIRB Secretariat.

In this role, she advised on complex and controversial foreign investment applications involving state owned enterprises and provided legal and policy advice to Treasury Ministers regarding Australia’s foreign investment regime more broadly, including in relation to rural land.

A selection of Belinda’s other experience includes:

advising on free trade agreements and investor-state dispute resolution;

advising on international tax arrangements and tax treaties;

advising on Australia’s competition laws as part of the Dawson Review of the then Trade Practices Act 1974 (Cth);

legislative design and amendment of the Australian Competition and Consumer Commission (ACCC) merger processes and information gathering powers; and

merger assessment at the ACCC.

Belinda was formerly a tutor in law at the Australian National University (ANU) and has served as a member of the Trade Practices Committee of the Law Council of Australia and the NTLG Transfer Pricing Sub-Group at the Australian Taxation Office.

Belinda holds a Bachelor of Commerce/Bachelor of Laws and a Master of Laws (with Merit) from the ANU.

NEW ADDITION TO OUR EXPERT FIRB TEAM

Belinda RobilliardSolicitorHerbert Smith FreehillsT +61 2 9225 [email protected]

For more information, please contact Mark Crean at [email protected]

Tip 3. Engage in discussions early and provide supporting information

In its latest annual report, the FIRB notes that proposals which take it longer to consider than the standard statutory time frame of 30 days either involve significant complexity or sensitivity, or are delayed by a lack of sufficient information provided by the parties.

Accordingly, to ensure as smooth a process as possible we consistently recommend foreign investors engage with the FIRB early on, sometimes even before a proposal is firmly on the table, as this can assist the FIRB in making a timely assessment when a proposal is formally lodged. We have found that the FIRB and its Secretariat are receptive to approaches, including on a no-names basis.

Our experience indicates that most of the information required by the FIRB to make its assessment and recommendation to the Treasurer can be anticipated. Nevertheless, it is important to engage with the FIRB early regarding the scope and detail of information that it will require since the level of examination is influenced by a number of factors, including the type and size of the proposal, the industry in which it is occurring, its level of complexity and sensitivity.

This article was written by Mark Crean, Partner, and Belinda Robilliard, Solicitor, Sydney.


The Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement (Protocol) was signed by Prime Minister Julia Gillard and New Zealand’s Prime Minister John Key in Wellington on 16 February 2011, reducing restrictions on trans-Tasman investment flows.

The Protocol aligns the treatment of New Zealand private investors under Australia’s foreign investment regime with that applied to private US investors, and also provides preferential treatment for Australian private investors in New Zealand - the first time that New Zealand has extended preferential screening thresholds to investors of another country. As of 1 March 2013:

New Zealand private investors need to seek approval for:

certain acquisitions of interests in Australian businesses or corporations valued at more than A$1,078 million (up from A$248 million) (except in prescribed sensitive sectors where the threshold remains A$248 million); and

investment in Australian developed commercial real estate at or above A$1,078 million (up from A$54 million, or A$5 million for heritage listed properties).

Australian private investors need to seek approval for:

certain acquisitions of shares or voting power in a New Zealand entity where the consideration for the transfer or value of the assets exceeds NZ$477 million (up from NZ$100 million); and

commencement of a business or acquisition of an existing business or

business assets in New Zealand where the total expenditure to be incurred exceeds NZ$477 million (up from NZ$100 million).

The Protocol also establishes a number of other useful principles, including a ‘most favoured nation’ commitment which will ensure that each country extends to the other the benefit of any additional liberalisation undertaken as a result of future agreements with other countries, and also a provision that ensures that any future unilateral liberalisation by Australia or New Zealand of foreign investments rules will become locked in, and cannot be rolled back, in relation to investors of the other country.

The higher screening thresholds, and other liberalisations, under the Investment Protocol are very welcome and should help reduce compliance costs in trans-Tasman transactions. However, further liberalisation would be welcome – in particular:

the dollar threshold above which screening is required for Australian private investment into New Zealand (generally NZ$477 million) remains lower than that applying to Australian private investment into New Zealand (generally A$1,078 million). While the difference in thresholds reflects the different sizes of the two economies, a higher threshold for Australian investment into New Zealand would be welcome; and

the changes do not provide relief from screening requirements in relation to sensitive land in New Zealand. Many New Zealand acquisitions involve a sensitive land element, and in these instances the recent changes will not assist.

This article was written by Philippa Stone, Partner, and Belinda Robilliard, Solicitor, Sydney.

TRANS-TASMAN INVESTMENTMADE EASIER

On 1 March 2013 the Protocol on Investment to the Australia New Zealand Closer Economic Relations Trade Agreement took effectNew Zealand private investors now receive the same preferential treatment as US private investors in Australian business and developed commercial real estate acquisitionsAustralian private investors also receive preferential treatment in New Zealand business acquisitions


For more information, please contact Philippa Stone at [email protected]


MARkET LEAdER In M&AWe have what we believe to be Asia Pacific’s leading team of M&A practitioners. Our strong M&A reputation has been consistently acknowledged, with Herbert Smith Freehills advising on the most completed M&A deals in the Asia Pacific during 2012.

REcEnT M&A ExpERIEncEWe are recognised by our industry peers as the market leader. Some of the deals the Herbert Smith Freehills M&A team has worked on recently, include:

HERBERT SMITH FREEHILLS

KING & WOOD MALLESONS

BAKER & MCKENZIE

KIM & CHANG

LEE & KO

MINTER ELLISON

ALLEN & OVERY

ASHURST

ALLENS

BAE KIM & LEE

2012 ASIA PACIFIC (EX JAPAN) COMPLETED M&A DEALS BY NUMBER

0 10 20 30 40 50 60 70 80 90 100

Number of deals

Yanzhou Coal’s A$8 billion merger with Gloucester Coal to create Australia’s largest listed pure play coal producer.

Peabody Energy’s successful A$5 billion hostile joint takeover bid for Macarthur Coal, which is the largest hostile joint bid and the largest coal takeover in Australian history.

AXA SA on its A$14 billion joint bid to acquire AXA Asia Pacific Holdings and US$9.4 billion (A$9 billion) acquisition of AXA Asia Pacific Holdings’ Asian operations.

a consortium comprising funds advised and managed by TPG Capital and The Carlyle Group on its A$2.7 billion acquisition of Healthscope Limited, Australia's second-largest private hospital operator.

China Investment Corporation in relation to its A$200 million participation in the Goodman Group's finance facility with Macquarie Bank.

Viterra Inc. on its A$1.6 billion acquisition of ABB Grain Limited.

TPG on its proposed takeover of Billabong International Limited.

Sichuan Hanlong Group Co Limited in obtaining FIRB approval for its proposed A$1.65 billion acquisition of Sundance Resources Limited

Watson Pharmaceuticals on its A$375M acquisition of Ascent Pharmahealth Limited which owns companies with operations principally in Australia, Singapore, Hong Kong and Malaysia

SELECTED CREDENTIALS


SELECTED INDUSTRy RECOGNITION

THOMSON REUTERS M&A LEAGUE TABLES

Advised on more completed deals, for a higher value, than any other Australian law firm 1997-2011Highest number of announced deals 2004-2009, 2011, 1H 2012Highest value of announced deals 2004, 2005, 2006, 2008, 2011

CHAMBERS GLOBAL GUIDE

Lead rankings in Australia for Corporate/M&A, Energy & Resources 2005–2013

IFLR 1000

Lead ranking in Australia for M&A 2004-2013Lead ranking in Australia for Project Finance 2004, 2006, 2008-2013

ASIA-PACIFIC LEGAL 500

Lead / prominent ranking in Australia for Corporate/M&A and Employment 2004-2010, 2012Lead / prominent ranking in Australia for Energy & Resources 2006-2009, 2012

Herbert Smith Freehills’ market leading position was recently recognised at the Chambers Asia Pacific 2013 Awards for Excellence in Beijing, where Herbert Smith Freehills was named 2013 Australian law firm of the year.

Herbert Smith Freehills was named Best Financial Law Firm for Australia at the 2012 FinanceAsia Achievement Awards for the second year running.

Best Professional Services Firm (revenue over $200 million)Best Law Firm (revenue over $200 million)Best provider to the government and community sector


AUTHORS

Mark CreanPartnerHerbert Smith FreehillsT +61 2 9225 [email protected]

Tom BowesSolicitorHerbert Smith FreehillsT +61 2 9225 [email protected]

Brendan EarlePartnerHerbert Smith FreehillsT +61 3 9288 1783 [email protected]

Belinda RobilliardSolicitorHerbert Smith FreehillsT +61 2 9225 [email protected]

Brodie Same SolicitorHerbert Smith FreehillsT +61 3 9288 [email protected]


Belinda FanPartnerHerbert Smith FreehillsT +61 3 9288 1368 [email protected]


Tony DamianPartnerHerbert Smith FreehillsT +61 2 9225 [email protected]

Paul TemponeSenior AssociateHerbert Smith FreehillsT +61 3 9288 [email protected]

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