Infrastructure Insights — June 2024

Proposed Revisions to EU FDI Screening Regulation — Implications for Investors and Transactions

Based on a recent evaluation of the existing EU Foreign Direct Investment (FDI) Screening Regulation, the European Commission (EC) has proposed amendments which, if adopted, would raise the regulatory hurdles for a number of transactions. The key proposals of the revised Regulation include:

• Requiring all Member States to establish a screening mechanism — adoption of the FDI screening mechanisms, which was optional under current regulation, would now be a requirement.
• Extended scope — regulation would now apply to investments from EU entities whose ultimate owners are non-EU investors.
• Increased harmonisation of national screening mechanisms — all Member States would have to introduce mandatory and suspensory filing requirements for investments in domestic target companies that participate/are active in relation to certain programs of EU interests or have activities related to certain listed technologies.
• Addressing transactions involving multiple jurisdictions — parties in multi-country transactions would be required to submit their filings in all Member States on the same day. The revised Regulation also sets out deadlines for initiating key steps in the review process.
• Own initial procedure — Member States and the EC would be able to open their “own initiative” procedure and review transactions which have not been notified to the Cooperation Mechanism.

EU and Euratom to Withdraw From the Energy Charter Treaty: Impact on Investors

The European Council has adopted four decisions, confirming that the EU and Euratom will leave the Energy Charter Treaty (ECT), while permitting any EU Member States still remaining as Contracting Parties to vote in favour of modernisation at the next Energy Charter Conference. While this development is by no means a surprise, it may have significant implications for investors depending on the time and place at which an investment was made.

The decisions to withdraw entered into force on 30 May 2024 and withdrawal will take effect one year after the receipt of the notification. For EU investors with existing investments, their ECT protections will continue to benefit from ECT protection for 20 years from 30 May 2024, while those with new energy investments made after 30 May 2025 will no longer benefit from ECT protections.

Pouring Oil on Troubled Waters? New UK Special Insolvency Regime Is Now on Tap

The UK water industry is rarely out of the headlines, whether for operational performance issues or reports of perpetual financial distress. It may therefore be more than a coincidence that the UK government has chosen now to introduce new rules for the special administration regime (SAR) that applies to water companies.

The main new objective is to prioritise the rescue of the company (as opposed to the business) as a going concern. A special administrator can now restructure a water company’s financial liabilities “in situ” (by using a compromise tool such as a Part 26A restructuring plan, Part 26 scheme of arrangement, or company voluntary arrangement) or “hive down” key assets to a subsidiary to facilitate the sale of the subsidiary company to a third party (potentially in a more tax-efficient transaction structure).

The SAR applies only to a water company either holding an appointment as a water or sewerage undertaker, or which is a qualifying licensed water supplier, water supply licensee, or a sewerage licensee. The SAR does not extend to other finance-raising vehicles within a water company’s wider group. The financing structures of these groups are typically complex, multi-layered, and in some cases contain a securitised ringfenced sub-group.