SINGAPORE is proposing a new law to scrutinise “significant investments” – from local or foreign sources – in “critical entities” not yet covered by existing legislation, with approval needed for major changes in ownership.

These requirements will apply to specified entities, with only “a handful” expected to be so designated under the law, said Trade and Industry Minister Gan Kim Yong.

Without giving specifics, he noted that some such entities may be covered by existing licensing regulations or contracting conditions, but these are inadequate in ensuring the continuity of essential services in a crisis.

The Bill will be introduced in Parliament on Nov 6 and will be implemented in 2024 if passed, the Ministry of Trade and Industry said on Friday (Nov 3). It did not say what companies might be designated.

Gan said that Singapore has been monitoring significant investments in critical entities, and has existing legislation governing sectors such as telecommunications, banking and utilities. “Because of an increasingly complex economic environment, it is important for us to take a broader view on how we can effectively manage the risks that may arise from these critical entities.”

The aim is to “to ensure their continuity, as well as the resilience of our economy”, he noted, adding that it will also help strengthen Singapore’s position as a “trusted business and investment hub”.

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The move was foreshadowed in August when Gan said that the government was exploring new tools to manage these risks, without elaborating on what form they might take.

Entities may be designated if they are incorporated, formed or established in Singapore; carry out activities in Singapore; or provide goods and services to persons in Singapore.

If passed into law, designated entities will be subjected to several ownership and control requirements.

First, they must notify or seek the Minister’s approval for certain changes in ownership or control (see graphic). Remedial directions may be issued – for instance, if approval conditions are not complied with, the investor may be ordered to transfer or dispose of their stake in the designated entity.

Control thresholds may be varied for specific designated entities as necessary, and these will be prescribed in subsidiary legislation.

Second, they must seek approval for key appointments, such as chief executive officer, directors and board chairpersons. Appointed officers may be removed if they were appointed without approval, or approval conditions are breached. In addition, they cannot be voluntarily wound up or dissolved without the minister’s consent.

The government can step in if national security issues arise or the delivery of essential services is disrupted.

But affected entities can seek reconsideration of decisions by appealing to an independent Reviewing Tribunal. The tribunal consists of three individuals appointed by the president, including a Supreme Court judge, who will act as the chairperson.

Separately, the Bill provides the government with targeted powers over any entity which acts against national security interests – including those not designated. If such an incident happens, the government can review the entity’s transactions in the prior two years which resulted in a change of ownership or control, and issue directions. For instance, the offending transacting party can be directed to dispose of his or her equity interest in the company.

An Office of Significant Investments Review will be set up as a “dedicated one-stop touchpoint” for affected stakeholders.

“Over the next few weeks, we will be reaching out and engaging the various industry stakeholders – particularly the entities that are being considered for designation – to share with them the details of this Bill,” said Gan. The authorities will work with them on the implementation details so as to address their concerns, he noted. “Most of our arrangements with them will be quite bespoke,” he pointed out, adding that they would be tailored to the specific nature of each entity.

Level playing field

That the Bill will apply to both local and foreigners is significant as it provides a level playing field for all investors, and signals that Singapore is still welcoming to foreign investments, said observers.

It will also ensure that national security threats are addressed regardless of their source, said Terence Ho, associate professor in practice at the National University of Singapore’s Lee Kuan Yew School of Public Policy. By targeting a select few critical entities, the Bill also limits the regulatory burden to just those designated, thus providing certainty to businesses, he said.

While observers did not comment on which sectors the designated entities could be from, Benjamin Ang, head of the Centre of Excellence for National Security at the S Rajaratnam School of International Studies (RSIS), noted that other countries with similar regimes have previously targeted aerospace, semiconductor and satellite firms.

Singapore Business Federation chairman Lim Ming Yan said the proposed Bill strikes a “good balance” between national security needs and business concerns. “We understand that this is not an omnibus legislation, but a complementary one to be applied only to a handful of entities.”

Lee Yi Shyan, chairman of non-profit organisation Business China, said the targeted nature of the Bill will provide reassurance to businesses who may be anxious about how wide-ranging the provisions could be. “Based on what is presented... most businesses will be assured when they see the first list of designated entities.”

The proposal to set up a dedicated office and appeal body is “consistent with the pro-business approach of the government”, added Lim. But more clarity is needed on their processes – how long it will take for queries to be responded to, and the processes for appeals. “We hope the government will take a consultative approach with the affected entities,” he said.

Most serious investors should already be taking investment screening into account in their international investment decisions, said RSIS’ Ang, adding: “So (the Bill) should not be too onerous so long as the process is clear, the implementation is transparent, and the decisions are reviewable.”