Proposed Statutory Developments in Singapore’s Foreign Direct Investment Regime – Significant Investments Review Bill

A. Introduction

Singapore has long been recognised as a leading global hub for business and trade, attracting foreign investors from across the globe. Foreign direct investment (FDI) regulation has become an increasingly relevant consideration in cross-border acquisitions and investments, and more and more countries are adopting FDI regimes to safeguard their critical industries and national assets. In line with such trends, Singapore has announced the introduction of the new Significant Investments Review Bill setting out a new investment screening regime to protect the national security interests of Singapore by regulating significant investments in, and control of, critical entities.

B. Singapore’s current laws

Presently, Singapore has relatively few FDI controls save in relation to certain industries such as banking, construction, and media, where FDI is subject to legislative restrictions. Singapore also has oversight of certain industries through licensing regimes, including the banking and telecommunications industries where investors are required to seek specific approvals and licences from the relevant sector regulators.

Singapore’s Competition Act 2004 (the Competition Act) also imposes certain controls on M&A transactions, although these are not targeted at FDI specifically. Section 54 of the Competition Act prohibits mergers that have resulted, or may be expected to result, in a significant reduction of competition within any market for goods or services in Singapore. Merger parties are generally expected to conduct a self-assessment to assess if their transaction might raise competition concerns, and if so, they may voluntarily file a merger notification with the Competition and Consumer Commission of Singapore (CCCS). Where there is a failure to notify, and the merger consequently results in competition concerns, the CCCS is empowered to investigate the merger.

C. The new regime

The Significant Investments Review Bill (the Bill) was passed in Parliament on 9 January 2024 after being first announced by the Ministry of Trade and Industry on 3 November 2023, and proposes a new screening regime for both foreign and domestic investors.

(i) Designated Entities

Under the new regime, an entity which is critical to Singapore’s national security interests will be identified and designated as a “Designated Entity” and subject to certain ownership and control restrictions. An entity may be designated as a Designated Entity if the entity satisfies one of the following: (a) it was incorporated, formed, or established in Singapore; (b) it carries out any activity in Singapore; or (c) it provides any goods and services to any person in Singapore, and the Minister considers the designation necessary in the interest of Singapore's national security. The Bill covers both local and foreign investments in Designated Entities by individuals and bodies corporate and unincorporate. Speaking in Parliament, Trade and Industry Minister Gan Kim Yong said on 9 January 2024 that “national security” in the context of the Bill broadly covers areas critical to Singapore’s sovereignty and security, including its economic security and resilience, and the continued delivery of essential services. The broad definition was intended to give Singapore the flexibility to respond to unanticipated circumstances promptly, as national security issues will evolve over time.

Before the Minister designates an entity as a Designated Entity, the Minister must give notice of his intention to the entity concerned and give the entity at least 14 days after the date of the notice to make written representations on the proposed designation. Once a designation is made, the Minister must give notice of the designation without delay.

Key regulations applicable to Designated Entities include requirements on:

(a) prospective investors into Designated Entities to:

1. notify the Minister within seven (7) days after becoming a 5% controller¹; and
2. obtain the Minister's approval before becoming a 12%, 25% or 50% controller or an indirect controller², or acquiring as a going concern (parts of) the business or undertaking; and

(b) existing investors in Designated Entities to obtain the Minister's approval before ceasing to be a 50% or 75% controller.

Any transaction which is closed without the necessary approval will be rendered void, although the Bill provides that the Minister may issue a validation notice in relation to the transaction upon application by materially affected persons. Where any condition of an approval from the Minister is not complied with, the transacting parties may be directed to remedy the non-compliance, such as disposing of a stake in the Designated Entity.

Designated Entities will also be subject to other provisions, including that:

1. the Minister’s approval must be obtained 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 have been appointed without approval or if conditions of the approval are breached, or in the interest of national security;
2. the Minister may make a special administrative order to direct that the affairs, business and property of that Designated Entity be managed by a person appointed by the Minister, if the Minister consider it to be in the interest of Singapore’s national security or in the interest of the security and reliability of carrying on the business of a Designated Entity; and
3. the Minister’s approval must be obtained for the voluntary winding up or dissolution of a Designated Entity.

Trade and Industry Minister Gan Kim Yong said on 9 January 2024 that the Government has already reached out to all the entities that are being considered for designation under the Bill, and that entities which have not been approached are not currently being considered for designation.

(ii) Non-Designated Entities

Even if an entity has not been designated as a Designated Entity, the Bill also allows the Minister to review ownership or control transactions involving any entity that has acted against Singapore’s national security interests within a period of two (2) years after the transaction. In this regard, the Minister may take targeted actions such as:

1. directing the transfer or disposal of any equity interest in the entity held by the transacting party;
2. directing that the transfer of or disposal of his or its equity interest in the entity be restricted; or
3. directing the transacting party to transfer or dispose of his or its control of voting power in the entity.

Next steps

The list of Designated Entities is yet to be released but will be published in the Government Gazette after the Significant Investments Review Act (the Act) comes into force which is expected to be in a few months’ time. The Ministry of Trade and Industry expects only a handful of entities to be designated and regulated as the majority of critical entities are already covered by sectoral legislation and has indicated that while the list of Designated Entities will be reviewed as required, there are no plans to significantly expand it in the near future. The Act will not supersede existing sectoral legislation but will complement them and focus on Singapore’s national security interests.

Once the Act takes effect, investors should assess as early as possible if their proposed transaction may involve an entity “critical to Singapore's national security interests” or may otherwise concern issues of national security in Singapore, and could therefore be subject to the new regime. Entities involved in activities which could potentially be considered critical to Singapore’s national security interests should also keep a lookout for any developments in relation to the Act.