Recent foreign investment in Australia is led by the US | Jones Day

in short

background: The Australian Treasury has released its first quarterly report for the 2023-24 financial year (the “Report”) covering the regulation of foreign investment in Australia.

result: Although the report shows a slight decrease in the number of commercial investment proposals compared to the previously reported quarter (April 1, 2023 to June 30, 2023) , the dollar value of commercial investment proposals increased significantly in the quarter ended September 30, 2023. The states were by far the largest foreign investor in Australia, with mineral exploration and resources being the most popular industry sector by value.

Looking to the future: Given the current strength of the USD/A dollar exchange rate and other macro factors, we do not expect to see any material change in the sources of large foreign investor flows to Australia in the short term. . That said, there have been several large Japanese-led public M&A deals announced recently, subject to FIRB approval, which are likely to reinstate Japan as a large foreign investor. Regarding the industrial sector, deals were announced across a wide range of sectors in Q4 2023 and Q1 2024, so it will be interesting to see if resources remains the dominant sector in Treasury’s next figures. It will be.

The Australian Treasury, which manages Australia’s foreign investment framework, recently released its first quarterly report for the 2023-24 financial year covering the regulation of foreign investment in Australia. This report provides a range of insights and performance data on the operation of Australia’s foreign investment regulatory framework.In this ExplanationHere we summarize Treasury’s key findings regarding inbound commercial investment proposals.

The United States is the most powerful foreign investor by a wide margin. The US was by far the most active foreign investor in Australia during the survey period, with 119 proposals totaling A$31.3 billion (a significant increase from A$3 billion in the previous quarter). Although the significant increase in value was primarily due to Newmont’s (approximately) A$26 billion acquisition of Newcrest Mining, the number of commercial investment proposals from the US significantly exceeded that from other jurisdictions. I was there.

• After the United States, France was the second largest source of foreign investment in Australia, with investment increasing significantly (A$4.7 billion compared to A$100 million in the previous quarter). Here again, the increase in public M&A is noteworthy. Activity from French bidders during the review period. In contrast, investment proposals from Japan fell significantly during the review period, from A$11.7 billion to A$500 million. Several recently announced Japanese-led public M&A deals are subject to FIRB approval, and future statistics are likely to reverse this trend.
• Foreign investment proposals from Canada remained relatively stable compared to the previous quarter, with 72 proposals for a total of A$2 billion; similarly, foreign investment into Australia from the United Arab Emirates was also significant. Although there were fluctuations, it remained relatively stable on a monetary basis. It decreases depending on the number of proposals.
• Commercial investment proposals originating from China remain subdued overall, but although the number of proposals fell, the value increased to A$1.6 billion (from A$800 million in the previous quarter). China remains the largest source of foreign investment in Australian residential real estate, both in value and number of proposals.

Minerals and resources attract significant foreign investment. Mineral exploration and development attracted the most overseas investment during the study period, with A$28.5 billion, while the services sector had a total investment of A$9.4 billion. Apart from residential real estate, the most popular sector in terms of number of proposals was commercial real estate, followed by investments in the service sector. In agriculture, as in manufacturing, foreign investment decreased both in amount and number of proposals. Again, the finance and insurance sector had the least amount of foreign investment activity.

Proposals approved with conditions remain stable. Treasury statistics show some consistency regarding conditionally approved commercial investment proposals. In terms of number of proposals, approximately 40% of approved proposals were conditionally approved, and in terms of amount, just over 80% were conditionally approved across the two most recent reporting periods. Interestingly, from 2022 to 2023, the majority of national security investment proposals have been approved without conditions, both voluntary and mandatory.

• It is expected that the majority of conditions will relate to ‘standard tax conditions’, but Treasury will report on other types of conditions imposed, or at least whether the conditions applied are ‘standard’ or ‘bespoke’. It would be insightful if you could show that Conditions regarding data security and use, physical access restrictions (to national security assets), and maintaining a local physical presence in Australia are other examples of conditions.

Increased national security activities. As evidenced in practice, the number of foreign investment proposals attracting the operation of Australia’s national security laws is increasing, with Treasury reporting that almost 5% of foreign investment proposals in recent quarters It related to national security measures and did not affect the operation of Australian national security law. Captured before the January 2021 changes to the National Security Foreign Investment Regulations. Interestingly, approximately 25% of national security investment proposals in recent quarters were voluntary notifications.

Processing time has stabilized. Over the past year, it has been generally observed that application processing times for proposals not related to national security activities have generally decreased somewhat. This is backed up by Treasury statistics, with the median in recent quarters being 37 days (36 days in the previous quarter) and 41 days in 2022-2023. However, it should be noted that the number of commercial investment proposals has decreased slightly (from 297 to 283) over the past two quarters.

• According to a Treasury report, approximately 40% of commercial proposals are processed within 30 days, approximately 35% are processed within 31 to 60 days, and 13% are processed within 60 to 90 days. Just over 10% are processed within 91 days or more. Interestingly, this last number is fairly consistent going back to 2022.
• Foreign investment applications that involve complex ownership structures, foreign government investments, or national security are often more complex and, in our observation, are more likely to take approximately 60 days to process.

Ministry of Finance focuses on transition to stronger enforcement power. Treasury has commented that Australia’s regulatory approach to detecting and responding to breaches of foreign investment law is maturing. In recent quarters, the number of conditional reports (where prior approval is subject to ongoing reporting requirements) assessed by the Treasury Department increased by nearly 50%. Treasury said that while Treasury’s primary compliance tool will continue to educate foreign investors about its obligations, Treasury will exercise more enforcement powers in response to noncompliance, including the power to issue notices of violation. It is pointed out that there is a shift in the direction of Despite this, the Ministry of Finance reports that it has not yet issued any infringement notices in the 2023-2024 fiscal year (compared to one infringement notification in the previous fiscal year).

• Treasury does not comment on its assessment of applicants’ level of compliance with the requirements of the recently introduced Australian Property Foreign Ownership Register. Anecdotally, we understand that this system poses technical and administrative challenges for some applicants.

4 key points

1. The United States continues to be, to some extent, the major foreign investor in Australia, both in terms of value and number of transactions. Investment levels by Canadian and UAE investors have remained relatively stable over the past two quarters, while commercial investment proposals from China have increased slightly.
2. The resources sector was the most attractive for foreign investment last quarter, followed by services. Commercial real estate was the second most attractive sector in terms of number of deals, although it was down in total value.
3. Processing times for commercial investment proposals appear to be stable, with approximately 37 days in the past two quarters and approximately 35% of applications taking 31 to 60 days to process. Proposals involving complex ownership, foreign government investments, or national security activities are often more complex and, in our observation, are more likely to take 60 days to process.
4. The Treasury says its main compliance tools include educating foreign investors about their obligations, but the agency is moving toward using more enforcement powers in response to noncompliance. Pointed out. The Ministry of Finance has significantly increased the rate of review of compliance reports submitted by investors.