Singapore Passes Significant Investments Review Bill in Relation to Transactions Involving National Security Assets

In Short

The Background: In recent years, the world has witnessed heightened sensitivity surrounding foreign investments, leading to increased regulatory scrutiny of foreign direct investments ("FDI") on the basis of national security concerns. The investment outlook for Singapore in 2024, appears to have begun on a similar footing. 

The Result: On 9 January 2024, the Singaporean Parliament passed the Significant Investments Review Bill (the "Bill"), which aims to scrutinize proposed investments in entities related to Singapore's national security. 

Looking Ahead: While the Bill serves as a proactive measure to safeguard Singapore's economic and national security interests, it will be limited in its application and is expected to have a minimal impact on investors. 

The Bill provides that certain 'designated entities' will be subject to reporting requirements for changes in ownership or control and will be required to seek the Minister's approval if such changes exceed certain thresholds.

Additionally, the Bill empowers the Minister to 'call in' transactions that are deemed contrary to Singapore's national security, regardless of whether either of the entities involved in the transaction are designated entities. If an adverse decision is made after the relevant transaction is reviewed, the Minister will be empowered to enforce a range of measures—including winding back the transaction. 

The Significant Investments Review Act (the "Act") is expected to come into force in the coming months. The requirements will apply to both Singaporean and non-Singaporean investors. 

It is not expected that the Act will impact many entities, as most critical entities will already be subject to reporting requirements under other sector-specific legislation (such as entities in telecommunications, banking, and utilities). The Act will work in conjunction with existing legislation rather than superseding it. 

Designated Entities

Under the Bill, the Minister may designate any entity incorporated, formed, or established in Singapore, carrying on business in Singapore, or providing goods or services to people or entities in Singapore, if it considers the designation necessary in the interests of Singapore's national security ("Designated Entity").

The Minister must give notice to an entity of its intention to deem it a Designated Entity and must provide the entity with at least 14 days from the notice to allow written representations in response to the proposed designation. 

Once an entity is deemed a Designated Entity, this designation is to be published in the Singapore Government Gazette ("Gazette") as soon as practicable. 

It is noted in the round-up speech for the Bill, most critical entities in Singapore 'are already adequately covered by existing sectoral legislation'. Accordingly, it is not expected that the Minister will designate many additional entities when the Act comes into force. All entities currently being considered for designation have been consulted and are aware that they are being considered. 

Reporting Requirements for Designated Entities

In relation to transactions, buyers acquiring at least a 5% interest (by equity amount or voting power) in Designated Entities will be required to notify the Minister in writing within seven days of the acquisition. Failure to do so would constitute an offence under the Bill (but does not void the transaction).

Transactions above certain thresholds will require express written approval by the Minister before closing. Any transaction that does not have the necessary approval prior to closing will be rendered void. If a transaction is rendered void, affected persons may apply to the Minister to validate the transaction. The Minister will only issue a validation notice if satisfied that the transaction is not contrary to Singapore's national security. 

The relevant thresholds for transactions that require Ministerial approval are where:

  • Investors will acquire a 12%, 25%, or 50% (as applicable to the relevant transaction) interest (by equity amount or voting power) in a Designated Entity; 
  • Investors will become an indirect controller of a Designated Entity; 
  • Investors will acquire, as a going concern, (parts of) the business or undertaking of a Designated Entity; or
  • Existing investors in a Designated Entity will cease to be a 50% or 75% controller of that Designated Entity.

 Designated Entities are also required to seek Ministerial Approval for the:

  • Appointment of key officers such as the chief executive officer, directors and the chairperson of the board. The Minister may remove such officers if they were appointed without prior Ministerial approval, if conditions of their approval are breached, or in the interests of national security; and
  • The voluntary winding up or dissolution of the entity.

 Call-in Powers

The Bill also proposed to grant to the Minister 'call-in' powers to review transactions involving an entity that 'acted against the national security interests of Singapore within a period of two years after the transaction'. If this condition is fulfilled and the transaction involved any entity incorporated, formed or established in Singapore, carrying on business in Singapore, or providing goods or services to people or entities in Singapore, these call-in powers may apply. 

Up to two years and 30 days after completion of the transaction, the Minister may publish a notice in the Gazette stating that the transaction will be reviewedIn the event of an adverse review, the Bill proposes that the Minister has a range of remedial powers available, including to:

  • Direct that any equity interest in the entity held by the relevant transacting entity be transferred or disposed in a manner as required by the Minister;
  • Direct the entity to take all necessary steps to cease the transacting entity's voting power or exercising any indirect control; or
  • Make any other direction as appropriate. 

 Before issuing any directive, the Minister will be required to provide written notice to the person involved, allowing them to submit written representations. Failure to comply with the Minister's directive within the specified period will constitute an offense.

Looking Ahead

With the passage of the Bill, Singapore has joined a growing list of countries that have implemented regulatory frameworks for the screening of investments on national security grounds. For example, in the last few years, new investment screening regimes have been introduced in the United Kingdom (see our White Paper), the Netherlands (see our Commentary), Belgium (see our Commentary), Ireland (see our Commentary) and China (see our White Paper), amongst many others.

Singapore also joins long-standing, and recently updated, FDI screening regimes in jurisdictions such as the United States (see our Alert), France (see our Alert), and Australia (see our Commentary), and foreign investment restriction frameworks in jurisdictions such as India and Indonesia.

While the existing regulatory landscape is not homogenous, a discernible pattern emerges in which investment restrictions in many jurisdictions are primarily sector-based, with a predominant focus on foreign investors. While Singapore has existing sectoral FDI legislation, the Bill aims to capture any entities not already covered by existing legislation. Accordingly, it is not expected that many entities will be impacted when the Act comes into force. Entities initially proposed to be designated will have already been consulted by the Singapore government.

Two Key Takeaways

  1. In a climate marked by heightened sensitivity over foreign investments, the Bill follows a similar approach to jurisdictions such as the United Kingdom and the Netherlands in applying mandatory notification requirements irrespective of whether the investor is foreign or domestic. 
  2. The round-up speech for the Bill was careful to emphasize that the Singapore Government wants to mitigate the regulatory burdens that will flow from the Act as much as possible. Nevertheless, the Bill is indicative of increasing regulatory scrutiny across the globe for FDI, and transactions in general, as a result of charged geopolitical tensions. 
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