Following the wave in Europe on the enforcement of foreign direct investment screening, Romania has just shifted to new rules for non-EU investors. The new regime entered into force on April 18, 2022, and is expected to be fully operational by June 18, 2022, when the new FDI Screening Commission is to be set up.
By design, the new law is not anticipated to significantly restrict foreign investments compared to the status quo. However, it will still have an impact on the number and duration of FDI screenings under national law, which may add time and regulatory complexity to the screening process.
As a stand-still obligation with associated fines of up to 10% of the investor’s worldwide turnover has been introduced, it is key that investors take into account any potential gun-jumping practices as well as the impact the new law may have, inter alia, on the transaction timetable, conditions precedent, remedies, and closing. While transaction unwinding could be ordered in case risks to national security are identified, the new regime also provides for a conditional authorization decision which may be issued by the FDI Screening Commission. For example, the following behavioral or structural remedies may be offered: certain participation rights offered to the government (i.e., minority stake with veto rights), protection of sensitive information/know-how/patents, restriction of governance rights or access to information for the acquirer post-transaction.
The scope of the law is broad: any greenfield investment or acquisition of control (in the sense of the EU merger regulation) over a local target active in sensitive sectors, with an investment value above EUR 2 million will be subject to the mandatory filling.
The focus of the new regime is aligned with the criteria listed in the EU Regulation on FDI, which target the protection of critical infrastructure, critical inputs such as energy or raw materials, as well as food security, access to sensitive information, including personal data, or the ability to control such information, and the freedom and pluralism of the media.
Still, as the list of sensitive sectors is broadly defined under national law and the de minimis threshold is set at a low level, it is expected that a broad range of investments will be notified for the purpose of FDI screening.
The review timeline for non-problematic investments has been extended to 135 days, which is triple the average duration of merger review procedures and could significantly impact the calendar of transactions. In that respect, investors should be able to resort to a fast-track procedure similar to the 30-day non-intervention procedure available in merger control, to rule out risk for borderline cases where it is unclear whether they fall within the ambit of the law, considering the sector or investment value.
Portfolio investments are exempted from screening as long as they do not lead to control being exercised by a non-EU investor. Control is defined in the sense of the EU Merger Regulation, encompassing control derived from any rights, contracts, or any other elements which confer decisive influence over an undertaking.
Non-EU investors which are already implanted and conduct business in Romania should pay particular attention to new investments, encompassing the creation of new units independent from existing facilities but, also, capacity extensions in existing units, diversification of output to new products, or a fundamental change in the overall production process of an existing establishment. In practice, such provisions may lead to a multitude of cases where existing investors will have to feed in FDI screening when they plan internal production reorganization. The new law’s application guidelines should provide more clarity on the type of operations falling within the scope of screening, to preserve an investor-friendly system.
After this article was published in the May issue of the magazine. The FDI Government Emergency Ordinance 46/2022 as approved by the Parliament on June 29, 2022, expressly empowers the FDI Screening Commission to also review investments in sensitive sectors made by EU investors. The law approving the GEO 64/2022 is as of July 8, 2022, subject to promulgation by the President of Romania.
By Anca Jurcovan, Partner and Head of Competition & Antitrust, Wolf Theiss Bucharest