The Overseas Investment Office (OIO), the regulator of New Zealand’s Foreign Direct Investment (FDI) regime, alongside other government departments, is under pressure to find efficiencies in their processes and systems. The need for this is particularly acute in the FDI space since foreign investment is sorely needed in support of some of the Coalition Government’s central policy promises - nowhere more so than in the infrastructure space.

Whilst the OIO might find that changes to its own practices and policies is helpful, we believe that only reform of the governing legislation (the Overseas Investment Act 2005 (OIA) and the Overseas Investment Regulations 2005 (OIR)) will produce the much needed inflows of capital. In particular, in this regard, we would recommend a focus on:

1. Significant streamlining of the process for investors from recognised trading partners. For instance, a large company listed on a recognised stock exchange in the US, UK or Europe, should not be required to provide proof of its “good standing” in order to obtain OIO consent.  
   More comprehensively, investors from those countries should simply be exempted from the regime (as previously suggested by the ACT party) or, at the very least, should benefit from an increased “significant business asset” threshold to sit alongside the Australian threshold ($500 million approx).
2. The requirement to demonstrate a benefit to NZ from land investments. This can prove particularly problematic if the transaction simply involves a restructure of an existing investment or an upstream change of control.
   In our view, there needs to be a recognition that continuing the relevant investment in NZ constitutes a sufficient benefit in these circumstances.
3. Unnecessary complexity in the “significant business asset” threshold. These tests are currently opaque and difficult to work with. In our view, they need to expressly state that the assets counted towards the consent threshold:  
   1. exclude any assets which are outside New Zealand; and
   2. exclude assets which are purely equity interests held by companies in other companies - ie only the NZ assets (other than equity interests) are counted.
      
      Both changes would ensure that the regime is targeted only at the acquisition of significant New Zealand assets which we believe to be the legislative intent.
4. The exemptions for Australian investors (subpart 3 of Part 5 of the OIR). This exemption currently only captures direct investments by Australian companies, not investment by wholly-owned NZ subsidiaries of Australian companies. This is a common structure adopted to give the Australian investor a layer of limited liability protection in NZ and its omission from the exemption is therefore a significant shortcoming. There are similar issues with the other investor types dealt with in subpart 2 of the OIR and these should also be addressed.
5. The overreach of the “call-in regime”. The call-in regime currently captures any level of investment in a “Strategically Important Business", unless it is a media business or listed. This is inappropriate, as only investments giving some level of influence or control, in our view, should require regulatory scrutiny.
   Whilst the rationale for the regime is the protection of New Zealand’s national security and public order, it is difficult to see how an investment by any offshore person could impact NZ’s security if it constitutes a very small interest in the target.
6. The exemptions to the “call-in” regime (as referenced in clause 64B of the OIR). These are intended to import the exemptions applicable to the consent regime into the “call-in” regime. Unfortunately, the drafting doesn’t achieve this where the investment is below 25% and this introduces additional uncertainty to transactions (like intra-group reorganisations) which should not be caught by the call-in regime.

We continue to discuss these (and other) issues with the OIO and would welcome any feedback from those who have experience of the regulatory process.