Australia Leads the Way in Inbound M&A and Investments Reform to Address Global Downturn
Last week Wayne Swan, Australia’s Treasurer, announced significant reforms to Australia's foreign direct investment (FDI) screening framework. The reforms will invite addition mergers and acquisition activity, with a view to supporting economic growth and positioning Australia for a more competitive recovery beyond the global recession.
There are concerns that the current economic turndown may lead countries to restrict inbound mergers and acquisitions. Australia nevertheless has taken commendable steps. Swan’s steps -- clearly anti-protectionist and pro-globalization -- reflect his assessment of the best interests of Australia’s economy. The reforms upsize the investment screening thresholds, set as fixed dollar amounts.
According to Mr. Swan’s press release, Australia’s government has recognized that the health of its economy is linked to the global economy. The government seeks to eliminate certain impediments to further FDI by removing itself from uncontroversial business transactions. The announcement makes clear that “Foreign investment is vital to Australia’s future growth and prosperity.” Reasons underlying this linkage are that FDI:
- creates jobs
- increases innovation
- promotes healthy competition
The current regulatory regime has six thresholds. The proposed regulations:
- replace the four lowest thresholds with one threshold of AUD 219 million
- replace those threshold that apply to U.S. investors with one threshold of AUD 953 million
- index the threshold amounts annually against the GDP price deflator
- eliminate the notice requirement that applies when foreign investors (other than U.S. investors) make a greenfield investment of more than AUD 10,000,000
Directly on the heels of Mr. Swan’s announcement, Yanzhou Coal Mining Co. reportedly launched its cash bid to acquire Felix Resources Ltd., based in Brisbane. Talks between the companies had begun over a year ago. According to Dealbook, Yanzhou’s bid is valued at more than AUD 3.5 billion. The offer may well test Australia’s liberalized outlook.
To put the matter in context, China's direct investments in Australia reportedly grew from US $1.4 billion in Q1 2008 to US $13 billion in Q1 2009, a staggering 830% increase.
Dr. Peter Drysdale, emeritus professor at the Australian National University, buttresses Swan’s
rationale. Dr. Drysdale, a noted Australian economist, speaks out against protectionism and in favor of cooperative, bilateral frameworks. He has told Xinhua, the official press agency of the government of the PRC that “Anxiety over the growth of foreign investment in resources by China is unfounded.” Dr. Drysdale’s premise is that increased international cooperation brings benefits to both the investor and the host country. Outbound investments secure stakes in projects that can provide long-term supplies to China’s rapidly growing markets and also bring management know-how and technology to China. The host country receives capital, know-how and access to markets. The Australian government has clearly heard Dr. Drysdale’s appeal to put market solutions ahead of regulatory solutions.
The Australian Government’s reform is particularly courageous in light of the current controversy over China’s July 5 detention of four Rio Tinto Ltd. employees, one of whom is an Australian national. Yesterday, there were reports that Shanghai prosecutors had approved the arrest of the employees. There is a predictable home-base backlash against FDI from China into Australia arising from China’s steps to deal with alleged thefts of secrets, particularly data with great value to China’s steel manufacturers, as well as bribery of non-governmental officials.
Our July 16 post to this blog discussed the U.S. State Department’s support for inbound FDI into the U.S. As the Australians are proving, however, actions are louder than words.
