Singapore’s investment outlook in 2024 unlikely to be hurt by Significant Investments Review Bill

Global economic uncertainty aside, one question for Singapore’s foreign investment outlook in 2024 is a proposed law to scrutinise significant investments in critical entities.

Introduced in Parliament last November, the Significant Investments Review Bill (SIRB) is set to be debated next week. It is not yet clear what entities will be covered, but observers say the law is unlikely to hurt foreign investor interest – and may even encourage it.

Targeted approach

One advantage is the SIRB’s specific approach, with a list of designated entities that will face ownership and control requirements. The list is expected to be published after the Bill is passed.

This leaves the vast majority of the market open to foreign investment, said Ben Chester Cheong, a law lecturer at the Singapore University of Social Sciences.

The SIRB thus differs from sector-based regulations in the UK and China, noted Tan Teng Sen, director of corporate and finance at law firm Drew & Napier.

As only a few entities are expected to be on the list, there will be minimal impact on other entities, and greater assurance for investors and investment targets alike, said watchers.

Singapore ultimately wants to remain an open economy, and signal this openness, said TSMP Law Corporation joint managing partner Stefanie Yuen Thio.

Entities on the list will have the clarity to act accordingly, she added. “Affected corporations will know exactly where they stand, and that the government has certain veto rights.”

“Uncertainty is anathema in markets, so this clarity is important,” she said.

The specific list recognises the need for “an even-handed approach” in balancing national security and economic interests, said Eugene Tan, associate professor of law at Singapore Management University.

The Bill does give the government targeted powers over entities that are not on the list – but only if they have acted against Singapore’s national interests.

“They will not affect the vast majority of companies without malign intent,” noted Terence Ho, associate professor in practice at the National University of Singapore’s Lee Kuan Yew School of Public Policy. “Hence, most investors should not be discouraged from investing on account of this provision.”

The Insolvency, Restructuring and Dissolution Act already allows the Courts to order companies to be wound up, for reasons such as being used for purposes against national security interests, he added.

“The new Act will give the government more calibrated tools to allow the entity in question to be preserved.”

Yuen Thio said more entities may be added to the list if geopolitical instability increases, but noted similar safeguards in Australia, China, Japan, the UK and the US. “So I don’t think this will set back Singapore companies.”

The new Office of Significant Investments Review, set up as a touchpoint for stakeholders, also serves as reassurance of a measured approach, observers said.

Fair and familiar

A second reassuring feature of the Bill is that it applies to both local and foreign investors. This is unlike most other jurisdictions where investment controls target foreign investors, said Prof Ho.

This “illustrates that this legislation is not discriminating against foreign investors, but is very much concerned about protecting essential entities”, said Benjamin Ang, head of the Centre of Excellence for National Security at the S Rajaratnam School of International Studies.

Thirdly, it helps that the Bill’s provisions are not wholly unfamiliar. It shares similarities with existing laws – which it is meant to complement – for the telecommunications, banking and utilities sectors.

Yuen Thio also drew a parallel to Golden Shares, which give the government more control over strategically important companies.

One worry is that the Bill’s threshold for review is stricter than elsewhere, noted Suresh Divyanathan, partner at law firm Oon & Bazul. Buyers must notify the government if their stake reaches 5 per cent, in contrast to thresholds of 25 per cent in the UK and 10 per cent in Australia for similar laws.

But he added that Singapore’s threshold makes sense, as a 5 per cent stake may be enough to make a shareholder one of the largest – if not the largest – in a company. 

The big question

The main uncertainty is the list of designated entities, with observers declining to speculate about specific names.

The list could include entities involved in critical infrastructure; those developing or using sensitive technologies; and those with significant influence on public opinion, said Cheong.

Said Yuen Thio: “Given Singapore’s financial hub status, the finance sector is clearly under the microscope.”

“With geopolitical fighting over technology companies, that would also be a possible sector of strategic concern,” she added, also naming defence and supply chains as areas to watch.

Similar laws elsewhere cover artificial intelligence (AI), cybersecurity, semiconductor production, aerospace and energy, noted observers. Other possible areas are satellite technology, biotech, surveillance technology and healthcare. 

Sectors aside, Prof Eugene Tan noted: “Government-linked corporations – especially listed ones – could be designated under the proposed law.”

Yuen Thio noted that state investment company Temasek has major stakes in strategic companies that could fall under the new law, such as Singapore Airlines and Keppel.

If Temasek has an effective controlling stake, there is “no need” for such companies to be designated, she said. “However, the Act will be important if this changes, or if there are new companies or industries of strategic significance.”

Cheong cited French company CMA CGM’s acquisition of Neptune Orient Lines – formerly Singapore’s national shipping line – as an example of the sort of deals that could be covered.

Elsewhere, US controls prevented China-based manufacturer Asymchem Laboratories’ acquisition of chemical technology firm Snapdragon Chemistry in 2022. The same year, Germany blocked Chinese investments in two semiconductor makers over concerns regarding national security and the flow of sensitive technological know-how.

Due to similar concerns, the UK blocked Hong-Kong based Super Orange HK Holding from buying chip design software provider Pulsic, noted Drew & Napier’s Tan Teng Sen.

To account for emerging technologies, the list of designated entities will have to be reviewed frequently, noted Suresh.

Said SMU’s Prof Eugene Tan: “What might not be designated today could be designated in future.”

Coming clarity

Another source of uncertainty is the Bill’s definition of national security – or the lack thereof.

Prof Eugene Tan believes this omission is deliberate “to enable the authorities to adopt a broad and generous reading” of the term.

Cheong, however, expects more clarity during the debate on the Bill. But he agreed that the definition must be broad to account for the evolving security landscape, with developments in AI, cybersecurity and biotechnology.

Nonetheless, even as uncertainty remains, the law is not expected to dampen Singapore’s foreign investment prospects – and could even improve them.

“Investors for the long course and with no hostile intent are savvy, and will welcome the regulatory regime because it ensures that the corporate sphere in Singapore does not become a weaponised one,” said Prof Eugene Tan.

Cheong agreed, saying: “Contrary to concerns about stifling innovation, the SIRB encourages responsible investment in sensitive sectors.”

Ang expects the most significant long-run impact to be a greater need for investor due diligence – though the list of designated entities will make this easier.

“It’s unlikely that the government will use this often, because all indications are that foreign investment is still very welcome,” he added.

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