As more details of the government’s proposed changes to foreign investment rules become available, it has emerged that lenders will be affected by the reforms.
Planned to take effect at the start of next year, the changes will give the government power to block any investment by a foreign person on national security grounds regardless of the value of the investment.
Many more foreign investments will need to notified to the Foreign Investment Review Board before they can proceed.
Since 2015, the Foreign Acquisitions and Takeovers Regulation has included an exemption that meant lenders did not have to worry about foreign investment rules or FIRB notifications for secured loans involving foreign investments in Australia.
A draft of changes to the regulations was released at the end of September, which proposes that foreign persons providing secured loans will need to notify FIRB and obtain a “no objections notice” in order to take security interests in securities, assets, land with national security significance.
A “foreign person” for the purposes of FIRB is a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest (usually 20 per cent or more).
National security assets cover a wide range, including a business providing a service that is covered by the Telecommunications Act or the Security of Critical Infrastructure Act, and anything linked to defence or intelligence agencies.
Law firm Gilbert and Tobin said in a note to clients: “As a practical matter, lenders and security trustees will need to consider carefully whether they fall within the definition of a foreign person.
“Borrowers will need to consider the impact the proposed changes may have on their transaction timelines and costs of their lenders and security trustees are required to seek FIRB approval before entering into a transaction.”
The person taking a security interest will likely be the legal holder of the interest, which for the purposes of a syndicated loan transaction means the security trustee, rather than the individual lender beneficiaries of the security trust.