Urgent overseas investment law changes announced in response to COVID-19
The New Zealand Government has announced that it is further amending the Overseas Investment Act 2005 (Act) in order to protect key New Zealand assets as the economy recovers from the COVID-19 pandemic.
The key new change to be introduced by the Overseas Investment (Urgent Measures) Amendment Bill (Urgent Measures Bill) is the introduction of a temporary requirement for foreign investors to notify the Government of transactions so these can be assessed to see whether they are contrary to the national interest. The Urgent Measures Bill also brings forward provisions of previously proposed amendments (see our alert here) that are considered critical to the Government’s COVID-19 economic response.
The Government aims to have a shortened select committee process and for the law change to be in force by mid-June.
Other changes to the Act, considered to be less critical to respond to the COVID-19 situation, will be progressed separately, under a different Bill and over a longer time period.
Temporary notification requirement
Under the temporary notification requirement, overseas investors will be required to notify the Government before they proceed with an investment in a New Zealand business, if that investment results in more than a 25% ownership interest, increases an existing interest in that business to, or beyond, certain thresholds (being 50%, 75% or 100%), or results in the acquisition of more than 25% of the business’ assets (by value). This requirement will apply regardless of the dollar value of the investment.
The Government will then consider whether the investment is contrary to the national interest, and may impose conditions on, or block, the investment. It is expected that the majority of notified transactions will proceed quickly, without any Government intervention.
This power is intended to stop vulnerable New Zealand assets being subject to foreign takeover during the economic fallout of the pandemic. Once in force, the power will be reviewed every 90 days and will only remain in place while the COVID-19 pandemic and its associated economic impacts continue to have a significant effect in New Zealand.
Notifications will be made by way of a short (2-5 page) document providing information about the transaction, including the identity of the investor and its ownership and control, any links to foreign governments, and the nature and size of the business being purchased and the commercial rationale for that purchase. There will be no Overseas Investment Office fee for lodging a notification under this temporary regime.
It is intended that the notification process will be quick, to ensure investment is not unduly delayed. An initial assessment will be made by the Overseas Investment Office within 10 working days of the notification and investors will be told either that their investment can proceed or that it is subject to a further detailed review (with a timeframe of 30 working days, with the potential to extend by another 30 days). For transactions that are subject to further review, the Minister responsible for the Act – currently the Minister of Finance – makes a final determination on whether the transaction can proceed (with or without conditions), or whether it should be prohibited.
The Urgent Measures Bill also brings forward provisions of a previously introduced amendment bill that are critical to the Government’s COVID-19 economic response. These provisions will be permanent, and include:
- A national interest test, which will apply to investments that already require consent under the Act and which warrant greater scrutiny in the national interest, such as where a foreign government or its associates will hold a 10% or greater interest in the asset, or investments in certain strategically important businesses (eg significant ports and airports, water infrastructure, telecommunications).
- Call-in powers, which will allow the Government to review certain investments in strategically important businesses (such as critical national infrastructure) that do not otherwise require consent under the Act.
- Changes to simplify the overseas investment regime and cut red tape, including removing screening requirements for transactions that pose little risk, simplifying the investment test so it is less costly and time consuming, and imposing timeframes on decision making (although initially this will only be for processing notifications under the temporary power outlined above; other timeframes will not come into force until relevant regulations are enacted).
We welcome the decision to bring forward the measures that will streamline the existing regime and cut red tape. In relation to the temporary notification regime, we welcome the Government’s commitment to respond to these notifications in a short period of time. However, we note that while it is important to protect the national interest, more capital will be needed to facilitate the recovery of New Zealand’s economy as it comes through the COVID-19 crisis. Much of this capital may need to come from overseas, and we hope that the introduction of these measures does not add more uncertainty to the market and discourage potential investors.