February 17, 2008 / 5:51 AM / 11 years ago

Australia increases scrutiny on sovereign investments

SYDNEY, Feb 17 (Reuters) - Australia said it will study more closely investments into the country from funds owned by foreign governments, joining a host of countries who have called for greater scrutiny of sovereign wealth funds.

Investments by foreign state-owned companies and sovereign wealth funds raised issues beyond current national interest considerations which needed to be examined, the government said in a statement on Sunday.

“This reflects the fact that investors with links to foreign governments may not operate solely in accordance with normal commercial considerations and may instead pursue broader political or strategic objectives that could be contrary to Australia’s national interest,” a statement from Treasurer Wayne Swan’s office said.

Large foreign investment proposals are examined by Australia’s Foreign Investment Review Board (FIRB) currently. The FIRB plays an advisory role, determining whether an investment proposal is in the national interest, although the final decision is made by the Treasurer.

The latest decision comes just days after it was revealed China’s state-owned giant Aluminum Corp of China (Chinalco) and its U.S. partner Alcoa Inc. (AA.N) had planned buy up to 14.9 percent of of Rio Tinto (RIO.L) this month.

The firms ultimately bought a 12 percent stake in Rio just before a deadline for rival miner BHP Billiton (BHP.AX) BLT.L to make an offer for Rio, putting a significant obstacle in the path of a merger that could create the world’s second-biggest company.

The investment by Chinalco raised some concerns in Australia about Chinese investments, especially by companies in which China is a stakeholder.

Last week, the Dutch officials said the government should exercise more oversight over sovereign wealth funds. The U.S. Senate’s Banking Committee said it was also looking into the effects that sovereign funds have on the U.S. economy and financial security.

The International Monetary Fund estimated that more than 20 foreign government investment funds, known as sovereign wealth funds, are mostly financed by petrodollars and foreign exchange reserves. They manage between $1.9 trillion and $2.9 trillion around the world, U.S. lawmakers estimate.

Australia would now focus on whether a prospective foreign investor operated at an arm’s length from its government and whether such an investment would hinder local competition, the statement from Treasurer said.

Canberra would also study how much Australian participation in ownership, control and management of a company that would remain after a foreign investment is made.

“The government would also consider the extent to which investments might affect Australia’s ability to protect its strategic and security interests,” the statement added. (Editing by Lincoln Feast)

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