SA to tighten investor rules

Pres­i­den­tial body will block for­eign takeover bids if se­cu­rity is deemed to be at risk

Sunday Times - - Business Times - By ANN FARBER

● For­eign takeover bids that are deemed to be a threat to na­tional se­cu­rity will be at risk of be­ing blocked by a pres­i­den­tial com­mit­tee, in terms of new com­pe­ti­tion rules that par­lia­ment will de­bate on Tues­day.

This is one of a se­ries of far-reach­ing changes to South Africa’s 20-year-old com­pe­ti­tion leg­is­la­tion which Eco­nomic De­vel­op­ment Min­is­ter Ebrahim Pa­tel has tabled in par­lia­ment. They will also give the com­pe­ti­tion au­thor­i­ties pow­ers to tackle the high lev­els of con­cen­tra­tion in South Africa’s econ­omy, where many sec­tors are dominated by just a few large com­pa­nies.

“There is a much stronger fo­cus on eco­nomic in­clu­sion, and we have brought small and medium en­ter­prises much more di­rectly into the ob­jec­tives and pur­pose of the act,” Pa­tel told Busi­ness Times.

Though ques­tions have been raised about whether the draft leg­is­la­tion, par­tic­u­larly the na­tional se­cu­rity pro­vi­sions, will add to the hur­dles de­ter­ring for­eign in­vestors from in­vest­ing in South Africa, Pa­tel said the coun­try was open for busi­ness and wel­comed for­eign in­vest­ment, ar­gu­ing that the pro­posed leg­isla­tive changes would be a pos­i­tive.

“The fo­cus is on open­ing up the econ­omy via a range of mea­sures, which will be very good for in­vest­ment,” Pa­tel said.

The na­tional se­cu­rity pro­vi­sions, which are new ad­di­tions to the draft bill which Pa­tel first pub­lished in De­cem­ber, will re­quire the pres­i­dent to es­tab­lish a com­mit­tee to scru­ti­nise any for­eign takeover bid that po­ten­tially af­fects ar­eas such as de­fence, sen­si­tive tech­nol­ogy, se­cu­rity of in­fra­struc­ture or “the sup­ply of im­por­tant goods or ser­vices to cit­i­zens, or . . . to gov­ern­ment”.

The gov­ern­ment had ear­lier con­sid­ered a sep­a­rate piece of leg­is­la­tion to reg­u­late for­eign takeover bids but Pa­tel said it had been de­cided in­stead to in­cor­po­rate the pro­vi­sions into the com­pe­ti­tion leg­is­la­tion.

The pres­i­den­tial com­mit­tee will com­prise cabi­net min­is­ters and of­fi­cials cho­sen by the pres­i­dent and will have 60 days to con­sider the deal. It can block it or ap­prove it, with or with­out con­di­tions, and if ap­proved, the deal will then have to go to the com­pe­ti­tion au­thor­i­ties.

Her­bert Smith Free­hills part­ner Jean Mei­jer said the pro­vi­sion, which gives a po­lit­i­cal body the power to pro­hibit a merger in­de­pen­dent of the com­pe­ti­tion au­thor­i­ties, or im­pose con­di­tions on the grounds of na­tional se­cu­rity, was “likely to cre­ate sig­nif­i­cant un­cer­tainty and dis­in­cen­tivise for­eign di­rect in­vest­ment”.

The pres­i­dent will have to pub­lish a list of South Africa’s na­tional se­cu­rity in­ter­ests, in­clud­ing the mar­kets, in­dus­tries, goods or ser­vices, sec­tors or re­gions in which a merger in­volv­ing a for­eign firm will have to be no­ti­fied to the new com­mit­tee. One of the fac­tors the com­mit­tee could also con­sider is whether the for­eign firm is con­trolled by a for­eign gov­ern­ment.

Mei­jer said in a note the list of na­tional se­cu­rity in­ter­ests con­tem­plated was ex­tremely broad and it was not clear what would qual­ify, nor was there any re­quire­ment that the ad­verse ef­fect on na­tional se­cu­rity is likely.

Coun­tries such as the US, Aus­tralia, Canada as well as China have mech­a­nisms to vet for­eign takeovers on na­tional se­cu­rity grounds, though this is gen­er­ally a sep­a­rate process – such as the Com­mit­tee on For­eign In­vest­ment in the US or Aus­tralia’s For­eign In­vest­ment Re­view Board — and not part of their com­pe­ti­tion or anti-trust regimes.

South Africa’s com­pe­ti­tion leg­is­la­tion re­quires the com­pe­ti­tion au­thor­i­ties to con­sider pub­lic in­ter­est is­sues as well as pure com­pe­ti­tion con­cerns when it in­ves­ti­gates merg­ers.

The draft leg­is­la­tion in De­cem­ber added a fifth pub­lic in­ter­est test to the four that are al­ready in the act, re­quir­ing the com­pe­ti­tion au­thor­i­ties to con­sider the ef­fect of a merger on the pro­mo­tion of a greater spread of own­er­ship, par­tic­u­larly by black South Africans — and the new ver­sion has now added worker own­er­ship into the mix.

“We are try­ing to build a new model of eco­nomic part­ner­ship in South Africa,” Pa­tel said. The new draft bill has also in­creased the penal­ties com­pa­nies are li­able to pay for of­fences such as collusion or price dis­crim­i­na­tion if they com­mit these more than once.

We are try­ing to build a new model of eco­nomic part­ner­ship in South Africa Ebrahim Pa­tel

Min­is­ter of Eco­nomic De­vel­op­ment

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