OIO Updates

This Amendment Bill has now been through the Select Committee process (which included the opportunity for and review of public submissions). The Select Committee Report, setting out its recommended changes to the Bill, was released on 4 March 2021. The Bill will now proceed to its second reading in the House. This Bill contains the balance of amendments identified in Phase II of the Government’s OIO reform that were not introduced by the recent Urgent Measures Act. The Phase II reforms were designed to achieve a balance between, on the one hand, streamlining the Overseas Investment Act (Act) to cut red tape and support high-quality overseas investment and, on the other hand, strengthening the Act to provide stronger protections for farmland and the ability for the decision maker to consider broader impacts when screening investments. In its current form the Bill will: Introduce significant new flexibility for increases in ownership, removing the requirement for OIO consent for any increase in an existing ownership interest of more than 25% in entities that own sensitive land or significant business assets. If passed in this form, OIO consent will only be required if an overseas person increases its ownership interest to or above control thresholds of 50%, 75% or 100%, or acquires a different class of securities, or an increased interest in a strategically important business. Introduce a new “overseas person” definition specific for Limited Partnerships – this is a welcome change that removes some uncertainty but it does not otherwise provide much benefit for Limited Partnership structures, as overseas ownership of more than 25% will still trigger the requirement for OIO consent. Give some relief to NZ listed issuers, by providing that: they will no longer be “overseas persons” if they are more than 50% NZ owned, with a diverse overseas ownership. However, the entity will be subject to the OIO regime if overseas shareholders who hold 10%+ can collectively (a) control the composition of 50%+ of the governing body or (b) control the exercise of more than 25% of voting power. a nominal shareholding change that results in the issuer meeting the new “overseas person” definition will not require OIO consent, unless the relevant shareholder acquires at least 10% of the total shares. This change has effectively taken effect already, due to transitional “standing consents” granted under the Urgent Measures Act. Revise the definition of “sensitive land” so that the status of adjoining land will only be relevant in limited circumstances, including where the adjoining land is foreshore, lakebed, conservation land, specified regional parks, or land of cultural significance. This change has also effectively taken effect already, due to transitional “standing consents” granted under the Urgent Measures Act. Confirm the current position that negative impacts of an overseas investment cannot be taken into account and offset against claimed benefits. However, the Bill does state that if benefits are being claimed under a particular factor, negative impacts under that factor that are directly comparable can be offset. Revise the “benefit to New Zealand” factors – Whether an investment will benefit NZ is currently assessed against 21 separate factors set out in the Act and Regulations. This will be reduced to 8, although they are ultimately similar in scope, other than the introduction of the requirement to consider negative impacts of water extraction for bottling on water quality or sustainability. New benefit factors can no longer be added by Regulation. Incorporate the rural land directive (currently a Ministerial policy directive) that imposes a higher threshold on investments in farm-land to now form part of the primary legislation. Introduce positive changes to the counterfactual test so that the claimed benefits will now be assessed against the current state of the land, rather than being assessed against a hypothetical alternate purchaser. This provides significant added certainty for investors looking at a change of land use. Expressly require a proportionate assessment of the benefits (reflecting current OIO policy), having regard to the nature of the asset and the nature of the investment. Require farm land advertising to be carried out before a transaction is entered into. Increase the term for leases of sensitive land that do not require OIO consent from 3 years (including renewal rights) to 10 years (including renewal rights and previous interests), making leases a more practical option in many cases. Remove the need to satisfy the “investor test” if it has been satisfied for previous applications (under the new test that comes into effect in March 2021).