Recent decisions by the Australian government approving Chinese investments show the focus is towards retaining listed entities, developing assets and maintaining jobs, lawyers said. While policy is expected to remain opaque and continue to be assessed on a case-by-case basis, potential acquirers need to be flexible and approach government early, especially in the more sensitive applications such as those involving large equity stakes, close to strategically positioned security areas, and involving products where the investment can lead to market dominance, they added. In the two years since the Labor Party came to power, Australia’s Foreign Investment Review Board (FIRB) has completed 110 Chinese applications worth AUD 39bn, a source familiar with Treasury said, adding that only five had been subjected to various forms of conditions or undertakings. The source stressed that there is absolutely no cap on Chinese investments and the government was focused on the particular circumstances of each case and what the company was trying to achieve. Of particular concern is where customers buy resource producers and where companies are taken out the market system, he said. Also, the higher the stake sought, the more the government would look into the application, he added. The vast majority of cases are not controversial, the source said. His argument that if there are potentially difficult cases it is worth approaching the government before a deal is agreed was echoed by lawyers involved in advising Chinese clients looking to invest in Australia. One lawyer suggested the environment is now slightly more relaxed, but potential Chinese investors are still concerned that investments for a large stake might not be approved. Nonetheless, interest in Australia’s resource sector remains. She focuses her applications on tax policy, revenue policy and how the investment affects Australian businesses and existing jobs. To a second lawyer, he observed it is now becoming important that a Chinese investment retain an Australian listing, especially if it is in the resources sector. He believed in the resources sector a 100% acquisition is extremely difficult, but a 49% stake is possible provided that the listing remains. He, however, questions the logic of requiring a listing as the listed entity could still invest overseas. A third lawyer noted policy has always been relatively opaque but the government wants to maximize the benefits for Australians and wants evidence that the investment adds impetus to develop assets. His advice is that potential Chinese investors need to make a case what’s in it for Australia and need to take a careful approach without thumping tables, and instead talk to the government early to find out where the hot buttons are and design the proposal to make sure they accommodate the issues (such as not including assets near sensitive defence areas). He found the most sensitive applications are when a dominant producer is involved. Another lawyer noted the high profile cases where the investments were denied have a specific concern whether it be around sensitive defence land or market dominance of a particular product (like rare earth in the case of Lynsas). He is telling clients to start from the perspective that they are dealing with a policy area which is never black and white, so clients need to be flexible and have identified a range of outcomes that they can sensibly accommodate. One lawyer highlighted that timing is of concern for potential deals and that it could get worse as the market picks up. The source, however, denied the length of time for the FIRB to reach a consensus is an issue given that the majority of the cases are dealt with within the 30-day time frame. Not least among government’s recent decisions is one allowing Chinese companies to take a majority stake – even 100% in the case of Yanzhou Coal being allowed to buy Felix Resources on condition that at least 30% of the new company is listed within three years. This month, high-profile approvals include China Railway Resources Group's bid for 80% of RMA Energy and Centrex Metals' deal with state-owned Wuhan Iron & Steel Company for a 60% stake in a joint venture project and a 12.9% stake in Centrex.
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