09/14/2010 06:23:32 - =FOCUS
olitical Uncertainty Continues To Weigh On Australian Takeovers
By David Fickling
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--With a new government now in place, Australia's foreign investment regulator is expected to see a surge in applications as the backlog caused by months of political uncertainty starts moving through the system.
But lack of clarity on the minority government's views on foreign investment and its plans to tax the mining sector with its booming profits that are driving a recent wave of foreign acquisitions, will continue to loom over the system, according to lawyers and industry experts familiar with the process.
"There's a lot of pent-up resource sector activity which has been held (back) by the resources tax and the election," said John Elliott, a partner at Clayton Utz in Sydney.
Any logjam at the Foreign Investment Review Board, the government body that evaluates major foreign takeovers, risks delaying billions of dollars in deals.
In a sign that the stalled process may be breathing again, a A$2.7 billion offer from private equity groups TPG and the Carlyle Group for Australia's Healthscope Ltd. (HSP.AU) finally received FIRB approval Tuesday, just days ahead of a meeting expected to finalise the deal next week. The application has been with the Board for nearly two months.
But Banpu PCL's (BANPU.TH) A$2.5 billion bid for Centennial Coal Co. Ltd. (CEY.AU) has been extended twice from an original closing date of August 23 as the company awaits a decision by the new government.
Wilmar International Ltd.'s (F34.SG) A$1.75 billion purchase of CSR Ltd.'s (CSR.AU) sugar business, announced in early July and originally scheduled for completion in early October, had its FIRB approval period extended to November 9, after the national election was announced on July 17.
Several factors have been contributing to the delays. After loosing a simple majority in parliament, Labor Prime Minister Julia Gillard took weeks to cobble together a minority government with the support of three independents and a fourth legislator representing the Greens.
That has caused an unusually long hiatus on larger FIRB applications, which are typically put on hold during election periods as final approvals for prominent deals need to come from the Treasurer.
Nearly three months of uncertainty over the country's mining tax regime, as the government first introduced and then revised a plan to impose additional taxes on resource industry profits, is also likely to have prompted companies to delay submitting FIRB applications, lawyers said.
Lawyers familiar with the FIRB process said the system has been operating smoothly so far but may slow after the new government is sworn in Tuesday.
"We understand there isn't much of a logjam yet but that may well be because parties haven't been lodging applications," said Justin Shmith, a partner at Blake Dawson. "With that caretaker period ending, we may get a backlog."
But none of that has kept potential suitors away, as Australia's outsized position in the supply of key commodities such as iron ore, coal, zinc, nickel and gold, has made its mining companies prime acquisition targets in recent years.
Asian companies, such as Thailand's Banpu and India's Adani Power Ltd. (533096.BY), whose A$3 billion acquisition of Linc Energy Ltd.'s (LNC.AU) coal mines has already received FIRB approval, have vied to lock in future supply through acquiring or investing in Australian resources companies.
Most lawyers expect to see a sarp increase in takeover activity this year after M&A activity slowed in 2009 amid the global financial crisis.
Mining applications to FIRB reached 156 last year-down from 168 in 2008 but above 2007's 141-but the size of deals has risen consistently to an average A$451.4 million in 2009, from A$375.5 million in 2008 and A$137.8 million in 2007, according to FIRB's annual reports.
This M&A boom has not come without hiccups, particularly regarding investments by Chinese state-owned companies. Following stern resistance from some opposition senators, state-owned Aluminum Corp. of China Ltd. (ACH) last June abandoned a A$25 billion attempt to raise its 9% stake in Rio Tinto Ltd. (RIO.AU) to 18%.
FIRB's only significant criterion is safeguarding Australia's ill-defined "national interest", and the need for final approval from the Treasurer may further complicate matters as the country experiments with its first minority government in seven decades.
The views of the four non-Labor MPs on foreign investment and the extent of their influence on the government are unclear, said Elliot, adding that deals in more controversial commodities such as uranium, may have a tougher time.
"The government is already treading a fine line between welcoming Chinese investment and demanding proper commercial running of our businesses," Elliott said. "I can't see them ignoring the fact that they're in government with the help of these four" MPs.
-By David Fickling, Dow Jones Newswires; +61 2 8272 4689;
david.fickling@dowjones.com