Government tweaking Overseas Investment Act to prevent fire sales to foreigners during Covid-19 crisis

Associate Finance Minister David Parker says a 'national interest' test will be applied to many foreign purchases of assets during the Covid-19 crisis. Photo / Mark Mitchell

Associate Finance Minister David Parker has announced temporary changes to the Overseas Investment Act aimed at preventing key assets of distressed businesses being sold offshore.

The changes bring forward the introduction of a 'national interest test' which was signalled in November.

Parker said the Government was temporarily setting that test to any foreign investment that leads to a 25 per cent ownership of a New Zealand business, regardless of the dollar value of the deal. The test will also be applied to investments which took ownership to 50 per cent, 75 per cent or outright ownership of a New Zealand business, he said.

"We need to minimise the possibility that cornerstone businesses in our productive economy are sold in a way contrary to our national interest while the pandemic is causing the value of many businesses to fall," Parker said in a statement.

"This temporary power will operate as a simple notification requirement and the process will be quick to ensure investment is not unduly delayed but it is important to have new rules that protect Kiwi businesses from being snapped up and opportunities potentially lost as they recover from the damage caused by the virus."

Internationally, Governments have worried that a sudden downturn in revenue caused by Covid-19 could lead to key assets to be sold at bargain prices.

Parker warned some New Zealand businesses may currently have little value to the market, but still needed protection.

"Hypothetically, with international tourism at a standstill the value of a significant tourism company may have plummeted and could be low or near zero. That value would not reflect the importance of the business, so interim controls are needed to protect our national interest."

The temporary powers will be reviewed every 90 days "and remain in place only as long as it is necessary to protect the essential interests of New Zealand while the COVID-19 pandemic and its economic aftermath continues to have significant impact in New Zealand," Parker's statement said.

Once the temporary measures are lifted, the national interest test would remain in place for business transactions of at least $100m, or higher if agreed under an international trade deal.

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

"The changes we are introducing do not mean New Zealand is closing the door on foreign investment, only that the Government should have the ability to ensure that such investments are in line with our national interest and that we are well placed to grow once the COVID-19 crisis passes."

Other amendments to the Overseas Investment Act would mean that transactions considered low-risk would no longer be screened, such as "purchases by fundamentally New Zealand companies and small changes in existing shareholding".

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

Parks of the changes which Parker signalled in November will not be included in the urgent legislation, which he hoped would be in force by mid-June.

"Essentially we are fast-tracking the most critical measures of the Phase Two reforms necessary to respond to the urgent COVID-19 situation, and progressing the other reforms on a slower track to ensure they are fully considered by Parliament."