The government amends the Foreign Investment Law to prevent fire sales to foreigners during the Covid-19 crisis

Associate Finance Minister David Parker announced temporary changes to the Overseas Investment Law to prevent key assets of struggling companies from being sold abroad.

The changes advance the introduction of a ‘test of national interest’ that was identified in November.

Parker said the government was temporarily establishing that test for any foreign investment that leads to 25 percent ownership of a New Zealand business, regardless of the dollar value of the deal. The test will also apply to investments that took ownership of 50 percent, 75 percent, or full ownership of a New Zealand business, he said.

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“We need to minimize the possibility that the core companies in our productive economy will sell in ways that are contrary to our national interest, while the pandemic is causing the value of many companies to drop,” Parker said in a statement.

“This temporary power will work as a simple notification requirement and the process will be quick to ensure that the investment is not unduly delayed, but it is important to have new rules that protect Kiwi companies from being exploited and opportunities potentially lost as they become recover from the damage caused by the virus. “

Internationally, governments are concerned that a sudden drop in revenue caused by Covid-19 could lead to the sale of key assets at bargain prices.

Parker cautioned that some New Zealand companies may currently have little market value, but still need protection.

“Hypothetically, with international tourism stopped, the value of a major tourism company may have plummeted and could be low or close to zero. That value would not reflect the importance of the business, so provisional controls are needed to protect our national interest. “

The temporary powers will be reviewed every 90 days “and will remain in effect only as long as necessary to protect New Zealand’s essential interests, while the COVID-19 pandemic and its economic consequences continue to have a significant impact in New Zealand,” Parker said. statement said.

Once the temporary measures are lifted, the national interest test will remain in effect for commercial transactions of at least $ 100 million or more if agreed under an international trade agreement.

Parker said that Australia, Canada and the EU had strengthened their regimes.

“The changes we are making do not mean that New Zealand is closing the door on foreign investment, only that the Government must have the capacity to ensure that such investments are in line with our national interest and that we are in a good position to grow a time that COVID -19 passes the crisis “.

Other amendments to the Foreign Investment Law would mean that transactions deemed low risk will no longer be analyzed, such as “purchases made primarily by New Zealand companies and small changes in existing shareholding.”

The Office for Investment Abroad would also be equipped with enhanced enforcement powers, Parker said.

The parks from the changes Parker noted in November will not be included in the urgent legislation, which he hoped would take effect in mid-June.

“Basically, we are accelerating the most critical measures of the Phase Two reforms necessary to respond to the urgent situation of COVID-19, and moving the other reforms on a slower path to ensure that they are fully considered by Parliament.”