Australia has blocked a Chinese state-owned company’s takeover bid of $ 300 million for a local construction contractor in a move that reflects intense diplomatic and trade tensions between Beijing and Canberra.
The decision to prevent China’s state-owned civil engineering company from acquiring Probuild for reasons of “national security” is the first negative assessment Canberra has made since the new foreign investment rules (Firb) took effect on January 1st.
Canberra regulations give greater authority to review proposed investments in sensitive sectors by foreign bidders, study compliance with government approval conditions, and order divestments.
Experts said the decision to block such a relatively small acquisition sent a clear signal to Chinese investors that approvals for mergers and acquisitions in Australia now face significant hurdles.
“The cashier’s rejection of the South African-owned Probuild takeover bid by China State Construction Engineering Corporation is a sign of tighter oversight of Chinese investment under Firb’s new regulations that now include national security as a specific element in the verification process,” said Hans Hendrischke, professor of Chinese Business and Management at Sydney University Business School.
Professor Hendrischke said Canberra may have blocked the CSCEC because of Washington’s decision in August to put it on a list of “communist Chinese military companies” and ban U.S. investors from owning its shares. CSCEC is the world’s largest construction company by revenue.
CSCEC did not respond to requests for comment.
Chinese investment in Australia has fallen dramatically since bilateral relations deteriorated over Canberra’s decision to ban Huawei from providing 5G equipment, introduce foreign interference laws and call for an investigation into the Covid-19 outbreak in Wuhan.
A joint report from the University of Sydney Business School and KPMG found that Chinese companies had invested $ 3.4 billion in 2019, down 58 percent from $ 8.2 billion a year earlier.
Australia’s firm stance on Chinese investment reflects Washington’s far sharper approach to Beijing. However, it runs counter to Europe’s more modest approach and its decision to sign an investment agreement between the EU and China last month.
Josh Frydenberg, the Australian treasurer, declined to comment on Canberra’s decision.
Probuild’s parent Wilson Bayly Holmes-Ovcon revealed to the South African Stock Exchange that the potential acquirer had withdrawn its offer for Probuild following advice from Canberra that it would reject his application on grounds of “national security”. People who know about the job confirmed to the Financial Times that the bidder was CSCEC.
Simon Gray, Probuild’s chief executive, accused “politics” of Canberra’s decision to torpedo the deal, telling the Australian Financial Review that Probuild had taken on a less sensitive job than rival John Holland, which China Communications Construction Company acquired for $ 1 billion in 2015. years.
“It’s more politics than anything else. . . No one can give us a real reason why we risk national security. It’s a joke, “said Mr. Gray.
Australian companies are becoming increasingly nervous about Canberra’s crackdown on Chinese investment, fearing it will encourage Beijing to impose more trade sanctions on Australian products. However, the government insists it will not change its sovereignty in managing relations with China.
In August, Mr. Frydenberg blocked the takeover of China’s Mengniu for $ 600 million by Lion Dairy, a company owned by Japan’s Kirin Holdings