Romania: New FDI regime is finally here - what should investors expect?

Emergency Government Ordinance No. 46/2022 implementing the EU FDI Regulation (the "FDI Act") was officially published on 18 April 2022.

Here are the key takeaways:

Investments in scope

Foreign direct investments are broadly defined under the FDI Act. Apart from changes in control in the ownership structure of a company, these can also consist in (i) an investment of any kind made by a foreign investor for the purpose of establishing or maintaining long-lasting and direct links between the investor and an undertaking and/or a separate unit of an undertaking, via (ii) funds which are made available for carrying out an economic activity in Romania, and (iii) which allow the foreign investor to exercise control over the management of the business.

There are three criteria that need to be ticked for an investment to trigger FDI filing:

• the investment needs to be made by a non-EU investor;
• occur in certain sectors deemed sensitive from a homeland security standpoint; and
• have a value exceeding EUR 2m, albeit the FDI screening can occur even for transactions below this value, if they are likely to trigger potential risks or effects for homeland security of public order.

The new regime also applies to greenfield investments. Existing investors in Romania intending to extend the current capacity productions, diversify the production or otherwise make significant changes to the current production processes and, therefore, that are considered to be making a 'new' investment, also fall under the ambit of the FDI Act, and need to consider filing.

Portfolio investments, consisting in (i) acquisitions of shares on stock exchanges which (ii) do not lead to any direct involvement in the management of the company are excluded from the scope of the FDI Act. Purely EU investments will not trigger a filing obligation either.

The FDI Act sets out, however, that the RCC, when receiving a merger control filing, can make a referral to the FDI Screening Commission; the scope of this referral is not clear, namely if it may also include EU investments or only non-EU investments below the investment value, for example, for which the parties did not consider an FDI filing. Further clarification in this respect would be welcomed via secondary legislation.

Sensitive sectors

Sensitive sectors include the following:

• security of citizens and communities;
• border security;
• energy;
• transport;
• supply of vital resources;
• critical infrastructure;
• IT and communication systems;
• financial, tax, banking and insurance activities;
• weapons, munitions, explosives, toxic substances manufacturing and circulation;
• industrial security;
• protection against disasters;
• protection of agriculture and environment;
• protection of state funded companies or of their management during privatisation.

The above sectors will be reviewed in conjunction with the sensitive areas defined by the EU FDI Regulation.

Special transparency rules are foreseen for investments in media companies. These include companies (i) with audio-visual licences or that (ii) issue publications with an average of at least 5,000 printed copies/day in the last calendar year or that (iii) have a web portal with a minimum of 10,000 views/month. Such transactions will be subject to a public consultation process of a minimum 30 calendar days.

Applicability

The FDI Act applies to all "ongoing transactions", including investments in relation to which the parties announced their intention to conclude an agreement (e.g., via a preliminary agreement, MoU or LoI).

The FDI Screening Commission

The substantive review is entrusted to a new authority, the FDI Screening Commission. The FDI Screening Commission will be formally set up within 30 days as of publication of the FDI Act. It is envisaged to become operational within 60 days.

The FDI Screening Commission will be directly subordinated to the Romanian Government. It will consist of representatives of the Prime Minister, the Romanian Competition Council (the "RCC") and ten other state authorities and ministries. Representatives of the Romanian Intelligence Bureau and Foreign Intelligence Bureau will be permanent invitees to the meetings of the FDI Screening Commission.

Process

The FDI filings will be made to the RCC which will take over clerical functions for the FDI Screening Commission. While there is no formal guidance yet, we believe that the information sought under the EU form (Form B of the EU FDI Cooperation Mechanism) should be provided in Romanian FDI filings too.

The RCC will pass on the filing documentation to the FDI Screening Commission.

Based on its review, to be carried out in line with Art. 4 of the EU FDI Regulation, the FDI Screening Commission may:

• unconditionally clear the investment and issue a binding notice to this effect (in Romanian aviz conform) for the attention of the RCC;
• issue a conditional clearance, subject to behavioural or structural commitments or measures, and issue a consultative notice (in Romanian aviz consultativ) for the attention of the Romanian Government; or
• prohibit the investment and issue a consultative notice for the attention of the Romanian Government.

Timeline

While a non-conditional clearance is expected in principle within 135 calendar days as of the date when filing is deemed complete (with the caveat that requests for information do stop the clock), the timeline applicable in case of conditional clearances or rejection decisions is not transparent as such decisions can be only be made via a Government decision.

Fines

The FDI Act sets out pecuniary sanctions up to 10 % of the total worldwide turnover for (i) gun-jumping, (ii) providing inaccurate or misleading information or (iii) failure to observe the commitments set in a conditional clearance decision. The new fining regime enters into force in 30 days as of publication of the FDI Act.

Special statutory limitation periods are regulated under the FDI Act.

Fines can be applied only to the parties subject to filing obligations (i.e., the investor/s gaining sole or joint control, or making a 'new' investment).

Next steps & transitory regime

The new regime came into force on 18 April 2022. However, the FDI Screening Commission has not been set up and is expected to go live not earlier than 18 June 2022. Transactions occurring in the interim period will likely be notified to the RCC for the attention of the former review authority (the National Defence Council).

authors: Georgiana Bădescu and Cristiana Manea