Friday 1st April 2016
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The Overseas Investment Office, the unit of Land Information New Zealand that assesses foreign investment, is taking a harder line in rejecting applications that need more work and has expanded its team in an effort to speed up the process for potential offshore investors.
So far this financial year the office has sent back a quarter of applications to potential investors saying they didn't meet the required standard, up from 14 percent in the year ended June 30, 2015, and just 6 percent the year before that, according to the OIO's website. Manager Annelies McClure says the office made a conscious decision to reject more applications that don't stand up as a means to improve the overall quality and to accelerate the process for those buyers meeting the desired standard.
"We've taken in the past a lighter touch in terms of rejection, but you'll see from our statistics that they've gone up exponentially," McClure told BusinessDesk. "We are confident that if we can get these good quality applications in first, we should be able to drive down those timeframes."
At the same time, the OIO is expanding its team to 14 from nine which McClure says has already shown an increase in turnaround times. Having a small team means the regulatory agency can come under pressure when it goes through a period of staff turnover, which happened last year when two people left, McClure said.
"We're really very sensitive to changes in the team," she said.
The office has been working closely with local law firms to get them on board, particularly those with multiple rejections, to raise the standard of applications before they are lodged, she said.
The OIO aims to assess 90 percent of applications within a certain timeframe, based on the way it classifies the transaction. The shortest is a 30 working day turnaround, of which it was tracking at 100 percent in the six months through Dec. 31, while the 50 working day turnaround was at 40 percent and its 70 working day was at 70 percent.
The office is often criticised for the length of time it takes to process applications, most recently by NZX-listed industrial automation firm Scott Technology over a more than six-month wait for Brazilian meat processor JBS to buy a controlling stake, while ASX-listed Broadspectrum's board cited it earlier this year as a reason its shareholders should reject a takeover offer from Spain's Ferrovial.
McClure said the OIO turned around the Broadspectrum application very quickly, whereas in the case of Scott Technology it was a matter of waiting for JBS to provide the agency with more information on how its investment would create an economic benefit.
"We have heard what people are saying about the application timeframe, and we are using a variety of methods to try and improve the quality of applications," she said.
That process has become more complicated since a High Court judgment following a 2012 judicial review of Shanghai Pengxin's purchase of the Crafar family farms saw Justice Forrest Miller deem the office needed a more robust counterfactual analysis.
McClure said that's made some scenarios, such as development opportunities or conversions, "very difficult" relative to more straightforward decisions, but given the lack of case law on the Overseas Investment Act, she says it's useful for the office in how it should interpret the legislation.
The office today came under fresh criticism from law firm Russell McVeagh in a note questioning the OIO's interpretation that custodian or nominee entities holding shares on behalf of other investors will be deemed an "overseas person", even when it's holding the majority of those shares for New Zealanders.
The law firm anticipates that will capture a number of listed companies not previously considered overseas persons, and "calls into question a wide range of previous transactions undertaken without OIO consent and would require retrospective applications for consent for such transactions."
Russell McVeagh said that will make it more difficult for listed companies to interpret the rules, and may force custodians and nominees to seek exemptions to ensure they don't fall foul of the law.
"We see this as an unhelpful and altogether avoidable result that creates an additional burden for transactions never intended to be caught by the act," the law firm said.
The OIO expects to respond to the note next week.
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