Roaring changes in the Lion City? Singapore’s Significant Investments Review Bill

The Significant Investments Review Bill was recently introduced into Parliament by Singapore's Ministry of Trade and Industry. Designed to safeguard national security, if enacted, the Bill would enable the Singapore Government to have a significantly more hands-on approach in overseeing entities and transactions on the grounds of national security. 

Our summary of the Bill can be found here.

The Bill is still in the early days of the legislative process. However, it has raised eyebrows for regular investors into Singapore. Traditionally - and consistent with its peers across ASEAN - Singapore has adopted a permissive and relatively open approach to investment. The breadth of the Bill potentially brings about a significant shift from the existing regulatory environment, which only allows for limited oversight over sector-specific restrictions for foreign investments in the telecommunications, banking, and utilities sectors.

Who will the Significant Investments Review apply to?

The Bill does not differentiate between Singaporean or foreign investors. It uses an "entity-based approach" to identify specific businesses falling in scope. Entities that are eventually designated by the Government will be subject to change of ownership/control requirements and ongoing operational restrictions. In addition, the Government will have the power to review any transactions on national security grounds, whether or not they involve previously designated entities.

What are the key implications for designated entities?

Any entity providing goods or services, or involved in activities in Singapore, can fall within the scope of the proposed regime, no matter where it is incorporated. Prospective investors in designated entities must notify or obtain approval from the yet-to-be established Office of Significant Investments Review depending on the level of shareholding to be acquired. A designated entity will also face operational constraints under the Bill, for example, obtaining the approval of the Minister for the appointment of CEOs, directors and chairpersons of the board.

If investors fail to comply with the obligation to seek the Minister's approval, the transaction could be rendered void. The penalties for contravening this new regime also include imprisonment and fines.

Are there any implications for non-designated entities?

Entities that are not designated do not necessarily fall outside the scope of the Bill. The Government will retain a residual power to review any transactions involving non-designated entities, where it is in the national security interest to do so. This power can be used up to 2 years after the relevant transaction. The Government, upon its review, may issue directions to the relevant entities, which are akin to remedies typically imposed by foreign investment authorities – for example, directions to dispose of the target entity’s share to a specified transferee, or directions not to disclose the target entity’s information. 

What sectors are expected to be most affected by this Bill?

The Bill does not intend to create specific rules for sensitive sectors. Instead the Government has said its application will be limited to a “handful” of companies that are core to Singapore’s national security interests. Based on overseas examples, we anticipate that entities closely linked to defence/military, key national infrastructure, and dual-use technologies are most likely to be considered as falling within the scope of designated entities. 

Key takeaways for investors in Singapore 

The Bill will likely take its next Parliamentary step in January 2024 and fully enter into force in mid to late 2024. We expect that the legislative process will provide more detail on the likely contours of the regime and the policy intentions as to the scope and enforcement approach. 

For current investors in Singapore, a sensitivity analysis may already be advisable to consider how likely it is that particular businesses may fall within the scope of the new regime. This would assist in determining how to react to the Bill and to consider how this will impact your future transactions/operations in Singapore.

For future investors, the Bill gives rise to additional hurdles to consider during a transaction. For example, due diligence and feasibility assessments will need to assess whether a target is a designated entity under the Bill or whether its activities could potentially be “called-in” by the Government. Early consideration of a “national security” screening, based on the target’s activities, will allow an investor to evaluate the risk of “call-in” and potentially build in buyer-friendly clauses to allocate this risk in transactional documents. 

However, future operations of designated entities will not be fully in the hands of their shareholders or management - the Government will have the power to intervene in relation to certain key events, including the appointment of CEOs and directors of those designated entities.