Concerns over new foreign investment rules

Associate Finance Minister David Parker announced the rules to curb foreign ownership. Photo / File

Urgent changes to foreign investment rules made in response to covid-19, and in force from today, are being questioned by legal advisers trying to explain them to their clients.

Associate Finance Minister David Parker announced last month some rules to curb foreign ownership will be fast-tracked as the pandemic caused the value of businesses to fall.

The law introduced a national interest test for "any foreign investments, regardless of dollar value, that result in more than a 25 per cent ownership interest, or that increases an existing interest to – or beyond – 50 per cent, 75 per cent, or 100 per cent in New Zealand business."

Parker said the process involved a "simple notification requirement," after which a minister could decide if the transaction was contrary to the national interest.

Anthony Harper partner Tim Barclay said the government is overreaching and many businesses will be caught. The lack of a monetary limit or threshold, "makes it ridiculous," he said.

"Theoretically, a guy who is a plumber or painter, selling his used Toyota van, which represents more than 25 per cent of his business assets, if he sells it to another guy that had a painting business that was 30 per cent owned by an uncle or brother who lived in China… that would require notification to the Overseas Investment Office.

"We'll either have a situation where more people are ignorant of the rules and the OIO is not overwhelmed or we will have everything screened," he said.

Broad test

Lane Neave partner Sam Nelson added that the national interest test was very wide. Despite the Overseas Investment Office expecting just 20 transactions per year, he said it could affect many more, and that his clients already noticed there was a "shallow pool of equity" available.

"The minister's discretion is quite broad and, taking OceanaGold as an example, the minister can decide if it's strategic or important to New Zealand," said Joelle Grace, a partner at Lane Neave.

"It just means uncertainty which hits business confidence," she said, indicating she had clients facing this issue but declined to name them.

Last year, Land Information Minister Eugenie Sage went against officials' advice and Labour colleague David Clark in blocking a land purchase at Waihi by OceanaGold, arguing that mining was inherently unsustainable. OceanaGold commenced proceedings for a judicial review and a new application was subsequently approved by Parker and Finance Minister Grant Robertson.

National finance spokesman Paul Goldsmith acknowledged NZ should encourage local investment and that other countries such as Australia were implementing similar rules to restrict foreign investment.

"At the very least you could have a substantial threshold before having to go through the rigours of the office…you'd think maybe $20, $25 million or even $50 million might address the concerns of emergency situations.

"The broader point is that we are trying to rebuild and grow the economy. If you put it in a broader context the difference between us and the government is that they appear to see debt-fuelled government spending as the primary solution and we see a role for that but we have greater emphasis on private sector investment," he said.

- BusinessDesk