Foreign investment regulation
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Regulatory roundup: how member states are responding to the new EU rules
In the first of a regular series of snapshots on FDI developments around the world, we summarise how the screening regulation is being applied by policymakers and authorities in the EU.
The new Austrian FDI regime which came into force in July 2020 has significantly extended the scope of the country’s mandatory screening mechanism to cover the acquisition of businesses with activities in a broad range of sensitive sectors.
The Austrian regulator has also taken a very active role in the new EU-wide consultation mechanism as well as in the broad interpretation of critical sectors, leading to a significant increase in FDI filings over the past 12 months. By May the number of pending Austrian FDI cases had reached an all-time high, and while the authority is making efforts to provide approvals in time it remains to be seen how this increased workload will impact the timing of FDI filing procedures.
The Czech Republic new foreign investment screening law came into force on May 1. The regime applies to non-EU investors acquiring (i) the ability to dispose of a stake equal to or greater than 10 percent of voting rights in a Czech target, (ii) the ability to dispose of ownership rights to an asset through which the target's business activity is carried out, (iii) control, which results in the ability of the foreign investor to obtain access to information, systems or technologies that are important to safeguard the national interests of the Czech Republic, or (iv) becoming a member in the corporate bodies of the target. The FIC Act distinguishes two regimes depending on the sector concerned. The mandatory regime applies to sensitive investments and requires a prior approval from the Ministry of Trade and Industry, with the following sectors considered ‘sensitive’: military industry, critical infrastructure (media, energy, water management, food and agriculture, healthcare, transportation, communication and IT systems, financial markets, emergency services or public administration); and manufacturing or development of dual-use items. The voluntary regime includes the remaining transactions which can be implemented without prior notification.
Denmark’s new foreign investment screening regulation entered into force on July 1 and will apply to investments completed on or after September 1. The acquisition by foreign investors (ie non-EU or non-EFTA) of at least 10 percent of voting rights, shares or control in a Danish company active in a sensitive sector (such as defence, IT security or processing of classified information, dual-use item production, critical technologies and critical infrastructures) will be subject to the prior approval of the Danish Business Authority. In addition, the new regime allows non-EU/non-EFTA investors to submit voluntary notifications of acquisitions of more than 25 percent of a Danish company in any sector if the investment could pose a threat to national security or public order. The FDI regime is still in its early stages, and with the executive orders delineating the scope of application, the process, and the information to be provided for a filing not yet final, there is still some uncertainty regarding the exact scope of application.
On 17 April, CNH Industrial, the parent company of Iveco, announced it had ended discussions with China’s FAW Group over the sale of a unit of Iveco S.p.A. comprising the Iveco, Iveco Bus and Heuliez Bus brands. The decision was welcomed by both France and Italy, with CNH announcing that it would instead aim to spin-off its trucks, coaches and commercial vehicles businesses by early next year.
French Minister of the Economy Bruno Le Maire tweeted that the announcement was good news since the proposed takeover raised important issues of industrial sovereignty, highlighting that France and Italy had worked hand-in-hand to maintain industrial capacity in Europe. Italy also welcomed CNH Industrial’s decision, stressing that the production of heavy road vehicles is of strategic national interest. The Italian government, under widespread political and media pressure, had threatened to use its golden power last March to block the deal, with certain “dual” technologies held by Iveco’s Defense division raising particular concerns.
After recent reforms in response to the COVID-19 pandemic (focusing in particular on the health sector) new FDI screening rules entered into force on 1 May 2021 that significantly extend the scope of Germany’s mandatory and suspensory screening mechanism to cover acquisitions of businesses involved in so-called critical technologies and critical inputs (including artificial intelligence and autonomous vehicles). Another core element of the new rules is the extension of the types of transaction that fall within scope. For example, the acquisition of “atypical control” in the form of board seats, veto rights or information rights now carries the risk of a call-in by the German authorities even if the relevant voting rights thresholds (now 10, 20 or 25 percent) are not met. The new regulation also extends the concept to cover the cross-attribution of voting rights between several different investors (eg in case two state-controlled investors from the same jurisdiction invest in the same German target company). Finally, the new regulation clarifies that the acquisition of additional voting shares above the applicable thresholds can trigger a new filing requirement.
In April 2020, the Italian government blocked Shenzhen Investment Holdings (a Chinese state-owned investment company) from acquiring a 70 percent stake in Lpe S.p.A.. Lpe specializes in the production of epitaxial reactors, which are used to manufacture semiconductors. With a turnover of €27.9m it is the only Italian company involved in this type of technology and is a world leader in the sector, not least through its own patents. Italian Prime Minister Mario Draghi commented on the intervention as “a judicious use of golden power” given that “the shortage of semiconductors forced many car manufacturers to slow down production last year, so it has become a strategic sector”. Since its introduction in 2012, Italy’s golden power regime (which has over time significantly increased in scope) has led to prohibitions in just a few cases. In the case of Lpe, it appears the conditions of the sale were deemed “unsuitable to assure security and continuity of supply” in Italy and Europe, with Sweden, the Netherlands and the EU Commission intervening in the proceedings.
From March 1, an amendment to the Slovak Act on Critical Infrastructure requires the owner or operator of critical infrastructure in the energy, metallurgy, pharmaceutical and chemical industries to notify the government in the event of a change of more than 10 percent direct or indirect share or voting rights, or a change of persons having the possibility to exercise influence over management. The new rules apply irrespective of whether the critical infrastructure involved is acquired by a foreign or Slovak entity.
In parallel, the government is currently preparing legislation that would introduce an FDI screening mechanism in response to the EU regulation. The draft is still being discussed, although according to its current version, the new regime is scheduled to take effect from January 1, 2022.
In November 2020, Spain extended a law suspending the liberalization of certain foreign direct investments to cover deals involving residents of other EU and EFTA countries. The measures – which ran until the end of June this year – applied to companies carrying out certain strategic activities that are listed in Spain as well as those that are unlisted if the investment exceeded €500m. Any deals that fell within scope required a prior authorization from the government (for further details, read our briefing).
In June the government further extended this suspension and the need for prior authorization until December 31. According to the explanatory memorandum, this was due to the Spanish economy still being in recovery mode - the same reason that saw the original extension adopted late last year.
Last year the Dutch government announced two legislative proposals introducing stricter investment screening rules. It presented for consultation a draft bill that foresees a general national security regime covering investments in providers of “vital processes” and “sensitive technology” that could result in social disruption in the Netherlands, as well as announcing a sector-specific regime applicable to the defense industry. Further information on the latter has not yet been released.
The bill introducing the national security regime has been approved by the government and will soon be presented to parliament. It remains uncertain when the new FDI regimes will come into effect. However, investors currently involved in deals that could raise national security concerns are advised to evaluate the implications of the new regime on deal certainty and timing. Although it’s expected to be used rarely, the minister will be able to retrospectively call in transactions that complete between 2 June 2020 and the date the national security regime begins, give rise to national security concerns and have not been subject to a public interest intervention under the current sector-specific regimes.
If called in, transactions will have to be notified and will be subject to substantive review.
Please get in touch with us or your usual Freshfields contact if you would like to discuss these or any other regulatory issues in more detail.