COVID -19: Changes to overseas investment regime

Yesterday, the Government announced that it is amending the Overseas Investment Act to protect key New Zealand assets from falling unnecessarily into foreign ownership as the economy recovers from the fallout of the global COVID-19 pandemic.  These urgent changes echo those in Australia. 

Announcing the changes, Associate Finance Minister David Parker said

“We need to minimise the possibility that cornerstone businesses in our productive economy are sold in a way contrary to our national interest while the pandemic is causing the value of many businesses to fall”.

The changes bring forward the introduction of a national interest test to our most strategically important assets, as agreed by Cabinet last November as part of the Phase 2 reform of the Overseas Investment Act.

In addition, the changes include the temporary application of that test to any foreign investments, regardless of dollar value, that result in more than a 25% ownership interest, or that increases an existing interest to – or beyond – 50%, 75% or 100% in a New Zealand business.

The expected timeline for the changes is mid-June.

Temporary notification

The temporary power will operate as a simple notification requirement – and the process will be quick to ensure investment is not unduly delayed.

The temporary power will be reviewed every 90 days and remain in place only as long as it is necessary to protect the essential interests of New Zealand while the COVID-19 pandemic and its economic aftermath continues to have significant impact in New Zealand.

There is currently no detail about the requirements for notification – but it is understood that it is likely to require a short turnaround time for the OIO to respond to the notification (i.e. a no action letter) – whether the transaction can simply proceed or whether a more detailed OIO assessment will be required.

National interest test

Yesterday’s announcements also included that certain other investments in strategically important assets will also have to be notified to protect New Zealand’s national security.

Once the temporary measures end, a national interest test will remain for business transactions at a minimum threshold of $100m, or higher if set by the terms of an international trade agreement, as well as investments in sensitive land and fishing quota.

To date, there is only limited guidance about what might be against New Zealand’s national interest.

Other changes

The Government announcements also included statements:

• Recognising that New Zealand businesses’ demand for capital will likely increase in coming months – the law changes will also ensure that a large number of low-risk transactions are no longer screened.
• This includes purchases by fundamentally New Zealand companies and small changes in existing shareholdings, as announced as part of the Phase 2 reform (including such matters as transactions affecting land which adjoins ‘sensitive land’).  In addition the Government will use regulations to extend existing exemptions and remove screening from two further classes of low risk lending and portfolio management transactions.

Retrospective application?

Unlike some other law changes announced as a result of the impact of COVID-19, yesterday’s announcement did not specifically state that the law changes (particularly the temporary notification requirement) would have retrospective impact.  At a glance, it seems unlikely that the Government would require notification of a deal that has yet to be completed but which was not subject to OIO approval at the time it was signed.  By doing so, the Government would be creating delays and uncertainty for transactions that (in most cases) were not put together as a result of the impact of the COVID-19 outbreak.

Further information

Please contact me should you have any queries concerning the information to be provided.