Singapore has joined the trend of countries exercising greater oversight over investments in domestic entities in strategically important sectors. The Significant Investments Review Act (the “Bill”), introduced on November 3, 2023, will give the Singapore Ministry of Trade and Industry (MTI) authority to designate entities deemed “critical” to national security and to regulate “significant” investments by foreign and domestic investors in such entities. Although Singapore already employs sector-specific controls on ownership in telecommunications, banking, utilities, and other industries, the Bill is intended to fill gaps not covered by existing laws and regulations.

As currently written, the Bill has narrower provisions than those of other foreign direct investment regimes, like the Committee on Foreign Investment in the United States (CFIUS), as the Bill will impose restrictions on specifically designated entities, rather than generally applied criteria. Still, the announcement by Singapore, one of the world’s most open and business-friendly economies and a leading investment and financial hub, underscores the increasing attention countries are paying to who invests in, and influences, entities with national security implications.

Potential investors or acquirors of entities that are incorporated, formed, or established in Singapore, carry out activities in Singapore, or provide goods or services to any person in Singapore should be aware of this regulatory development and plan their transactions accordingly. Morrison Foerster’s National Security Group specializes in helping companies navigate investment review regimes, and the firm’s Singapore team has many years of experience advising on M&A, investment, and other transactions in South and Southeast Asia, including Singapore. The team has deep knowledge and understanding of the legal environment and how to successfully execute complex transactions in Singapore.

Key Takeaways

• The Bill empowers MTI to designate entities that are “critical” to Singapore’s national security and to prospectively regulate “significant” investments (with as low as a 5 percent equity interest) by both foreign and domestic investors in such entities.
• The Bill is intended to fill gaps not covered by existing sector-specific regulations.
• Obligations for investors in designated entities range from a notification to formal government approval—depending on the acquired interest. Of note, approval may also be required for certain divestments of designated entities.
• Only a “handful” of entities are anticipated to be designated when the legislation is expected to take effect in mid-2024.

Key Provisions of the Bill

Designated Entities

The Bill authorizes MTI to designate entities “necessary in the interest of Singapore’s national security” if they (a) are incorporated or established in Singapore, (b) carry out activities in Singapore, or

(c) provide goods or services to any person in Singapore. The Bill does not provide further guidelines for what entities may qualify for designation. MTI is left with considerable discretion.

Significant Investments

The Bill divides “significant” investors (called prospective “controllers”) into five levels/categories:

• Level A: holding at least 5 percent interest
• Level B: holding at least 12 percent interest
• Level C: holding at least 25 percent interest
• Level D: holding at least 50 percent interest
• “Indirect controllers” include any non-director “in a position to determine the policy of the entity” or whose directions, instructions, or wishes the officers of the designated entity are accustomed or under an obligation to act in accordance with regardless of equity interest.

The Bill also assigns labels to controllers seeking to divest their positions that hold an existing interest of at least 50 percent (referred to as Level Y controllers) or at least 75 percent (referred to as Level Z controllers).

MTI is also authorized to prescribe percentage thresholds that are different from the default thresholds listed above.

Reporting Requirements

Prospective Level A controllers must simply notify MTI within seven days of their investment in a designated entity. Designated entities must also report such investments.

Approval of Investments, Acquisitions, and Divestments

Prospective Level B, C, D, and indirect controllers must apply for and receive approval from MTI before completing their investment in a designated entity. Approval is also required for prospective acquirers of a business (or parts of it) of a designated entity as a going concern. To receive approval, potential investors or acquirers must satisfy the Bill’s “Guidelines on Fit and Proper Criteria” and the transaction must not be against Singapore’s national security interests. Additionally, MTI must approve the divestment of Level Y and Z controllers.

A designated entity must also report on any investment or divestment and certain changes in its ownership. Transactions completed without approval are presumptively void, but MTI could validate nonconforming transactions upon petition or on its own initiative.

Approval of Officers

MTI must approve the appointment of chief executive officers and directors of designated entities. This provision applies to all officers and directors, not just those appointed or nominated by significant investors. MTI can remove officers and directors but must provide the individual and designated entities with an opportunity to be heard.

Retroactive Review

While the Bill introduces a regime for prospective regulation of entities after they have been designated, it also empowers MTI to review transactions involving any entity (not just those designated) that has “acted against the national security interests of Singapore” within two years of the transaction at issue. Remedial measures in such cases can include compelled divestment.

How the Bill Compares to CFIUS

The Bill differs from CFIUS regulations in several important respects. The Bill’s provisions only apply to specifically designated entities. The Bill is in this respect narrower than CFIUS’s provisions, as CFIUS can potentially review any foreign investment of sufficient size or sensitivity and is not limited to a list of pre-identified companies.

Unlike CFIUS regulations, the Bill applies to foreign and domestic investors alike, whereas CFIUS only covers inbound foreign investments. And the Bill expressly applies to areas that are likely outside CFIUS’s current jurisdiction, such as employment decisions at designated entities, and allows for the retroactive review of transactions if an entity has “acted against the national security interests of Singapore” within two years of the transaction at issue.

What Comes Next

The legislation is anticipated to take effect in mid-2024. The first reading of the Bill in Parliament occurred the week of November 13, 2023, with a second reading expected in January 2024. MTI is setting up an Office of Significant Investments Review, but expects “only a handful of critical entities to be designated.”

Nicholas Weigel, an associate in Morrison Foerster’s Washington D.C. office, contributed to this alert.

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