Australia tightens scrutiny on foreign takeovers

[SYDNEY] Australia's tighter scrutiny on foreign takeovers is to protect domestic firms from getting picked up at times of weakness, according to Deutsche Bank.

The country on Monday announced that foreign investments, regardless of size, must seek approval by the nation's investment review board. Treasurer Josh Frydenberg said the new rules were "temporary and are designed to protect Australia's national interest" as the coronavirus outbreak continues.

"It's not a blanket ban but really just firing a warning shot out there," said Alex Cartel, head of investment banking coverage for Australia at Deutsche Bank. "From their perspective, it's about ensuring we come out the other side of this phase in the same position as we went in as much as we can."

While Mr Frydenberg stressed that it's not an investment freeze, the new measure is set to deter any foreign suitor looking to take advantage of what could be Australia's first recession in 30 years, with some companies already tapping credit lines and selling new shares to raise funds. It also underscores the government's efforts to reassure corporate confidence after local asset prices plunged due to the coronavirus pandemic.

Mr Frydenberg said he will continue to review foreign investment proposals against the national interest on a case-by-case basis and will apply conditions to address identified risks when appropriate.

The change will effectively put all foreign investors under the same scrutiny applicable to overseas governments, said Malcolm Brennan, a Canberra-based partner at law firm King & Wood Mallesons. The measures could potentially lead to a backlog of deals for reviews, while transactions that could save jobs or even boost employment will likely be fast-tracked, he said.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The government said on Monday that it will prioritise urgent applications for investments that protect and support Australian businesses and jobs, while the review board will extend timeframes for reviewing applications from 30 days to up to six months.

"Proposals like internal reorganisations where you're just reshuffling the deck chairs for a slightly better tax outcome, they will now take six months or FIRB (Foreign Investment Review Board) might even tell you to come back later," Mr Brennan said.

BLOOMBERG