10 ASIAN LEGAL BUSINESS – SEPTEMBER 2023 WWW.LEGALBUSINESSONLINE.COM BRI EFS (Reuters) In recent months, Australia has become a key target for Japanese companies as they seek to invest in energy (including renewables), technology, real estate and more. And lawyers expect this trend to diversify, given Australia’s diverse business possibilities. Japan and Australia have traditionally been close investment partners, with the North Asian country having been the second-largest source of foreign direct investment into Australia after the U.S. But the relationship appears to have strengthened even more recently,with Herbert Smith Freehills reporting a “step change” in the past 12 to 18 months. “Changes in the global geopolitical environment have brought the two countries closer together as trusted partners, particularly in the mutual pursuit of decarbonisation and energy security,” the report found. “Japanese M&A and investment activity in Australia was significantly higher in 2022 than 2021. Investments occurred across a broad number of sectors, including energy, technology, financial services, real estate, consumer, infrastructure, construction/housing and services. The energy and technology sectors were especially attractive targets for investment.” One major reason is that Japan is has been looking to diversify its energy supply away from Russia, but in the long-term, the country is also keen to secure green energy sources. While Australia currently supplies around 75 percent of Japan’s coal for power generation and around 43 percent of its liquefied natural gas (LNG), “the Japanese government and companies are simultaneously addressing energy security in the context of decarbonisation as part of the energy transition from fossil fuels,” say Ian Williams and Damien Roberts, partners at HSF. The HSF report identified another factor behind the uptick: As COVID travel restrictions were relaxed, Japanese companies were able to make more frequent trips to Australia to make on-site inspections and conduct due diligence easier. “New energy-related MOUs and joint feasibility studies that were signed in 2019-2021 are now progressing to the proof-of-concept” stage and “implementation phases as the projects aim for commercialisation by 2030.” Australia’s unique resource composition is a booster of these moves. In addition to producing a great amount of fossil fuels such as coal and natural gas, Australia has a lot of deposits that are suitable for carbon capture and storage (CCS), while being suitable for solar power generation thanks to sunshine throughout the year and wind power generation due to a lot of flatlands and stable wind. In short, Australia is currently and will continue to be an energy superpower that can produce massive quantities of green ammonia and hydrogen through the production of renewable energy. It also produces the minerals necessary for large-capacity batteries. However, Hans Menski, a partner at Clifford Chance, says that Japan still needs LNG, and Australia is its main supplier. “However, Australia has the potential to become a major green hydrogen and ammonia supplier, and in a lot of ways it’s become a focal point for energy investment not only for immediate transition but also longer term. There is a lot of pressure, particularly on fossil fuel power generation. We expect that energy supply from Australia to Japan will move to new energy, particularly hydrogen and ammonia,” he projects. Williams and Roberts hold the same opinion. “Japan is looking at all energy sources for its future energy security – renewables, CCS/CCUS, blue hydrogen (hydrogen produced fossil fuels but the by-produced CO2 are stored in unused deposits), green hydrogen, ammonia, methanol,” they say. “All of these developments mean that Australia is well positioned to continue as a trusted and reliable energy supplier to Japan.” But natural resources are not the only enticements for investors, with the country offering investment opportunities. Australia is becoming known as a technology country and a center for innovation, says Williams and Roberts. They say the success of software companies such as Atlassian, WiseTech, Acconex and unicorn companies like Afterpay, Linktree, Canva, Airwallex, Realestate. com.au, Seek, Carsales, and MYOB are a factor behind the growing reliability of the Australian technology market. There are additional areas of interest such as railroad infrastructure and real estate. Some major M&A deals of late have included Tokyo Gas’ $2.15 billion sale of its interest in four LNG projects MidOcean Energy; TAL Dai-ichi Life Australia’s $600 million acquisition of Westpac Life Insurance Services from Westpac, and Mitsui and Nomura’s acquisition of 67 percent of agricultural asset management company New Forests. Herbert Smith Freehills’ report projects “increasing sector diversity with investments in consumer products, retail, real estate and services,” adding that “Japanese trading houses in particular have continued to divest from carbon-intensive assets which they no longer consider strategic and reinvest in tertiary industries. Sydney and Melbourne are increasingly seen as luxury markets in the same mould as Singapore or Hong Kong where there is demand for high value products and services.” AUSTRALIA’S RENEWABLE ENERGY AMONG FACTORS LURING JAPANESE COMPANIES Image: chinasong/Shutterstock.com
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