Germany Blocks Two Transactions Involving Chinese Investors On National Security Grounds

Author:Mr Jürgen Beninca, Renato Antonini, Matt Evans and Chase D. Kaniecki
Profession:Jones Day
 
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In Short

The Situation: Germany prevented State Grid Corporation of China ("SGCC") from acquiring a 20 percent minority stake in 50Hertz, one of Germany's four providers of high-voltage transmission systems, as well as the acquisition of a German specialist in high-strength metal forming by a French/Chinese consortium.

The Reason: Both transactions were prevented based on concerns of risk to public order and national security.

Looking Ahead: Other countries around the world are taking steps to adopt new, or amend existing, foreign direct investment review regimes to protect national security. In what appears to be a coincidence with respect to the timing, Germany's government ("Government") effectively blocked two transactions involving Chinese investors on grounds of national security within days of one another. Such actions come at a time when Chinese investments in other jurisdictions also are being increasingly scrutinized, for instance by the Committee on Foreign Investment in the United States ("CFIUS").

On July 27, 2018, Kreditanstalt für Wiederaufbau ("KfW"), a German state-owned development bank, announced that it would acquire a 20 percent minority stake in 50Hertz, a Berlin-based company running a high-voltage transmission grid in Germany, from IFM Investors. According to the German Ministry of Economic Affairs and Energy ("BMWi"), KfW became active to prevent SGCC, a Chinese state-owned utility, from acquiring the 20 percent minority stake. The BMWi justified the decision on grounds of national security, arguing that 50Hertz is an important transmission system operator in Germany and responsible for the electricity supply to approximately 20 percent of the German population. SGCC's acquisition of the minority stake in 50Hertz could not have been blocked pursuant to Germany's foreign direct investment screening regulation ("AWV") because the AWV catches only the acquisition of 25 percent or more of the voting rights in a German company.

SGCC had tried to buy another 20 percent stake in 50Hertz from IFM Investors earlier this year. Ultimately, however, Elia, the operator of Belgium's electrical grid and the other shareholder of 50Hertz, acquired the stake (allegedly upon the request of the Government).

In light of the experience in the 50Hertz case, Germany will lower the threshold for catching transactions under the AWV from 25 percent to 15 percent of the voting rights in a German company by the end of this year.

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