Germany Moves to Block Sovereign Wealth Funds

Aug. 20, 2008
If an acqiusition of a German company is deemed a threat to public security it could be held up.

Berlin is aiming to block takeovers of German firms by petrodollar-rich investment vehicles known as sovereign wealth funds if they are deemed to jeopardize national security. Chancellor Angela Merkel's cabinet approved a bill that would see acquisitions by foreign entitities not based in the EU of more than a 25% stake in German firms scrutinized, the economics ministry said.

If such a purchase is deemed to pose a threat to public security or order, Berlin could prevent it from going through, according to the bill that must now be passed by parliament to become law, the ministry said.

Sovereign wealth funds are investment vehicles typically controlled by hydrocarbon-rich countries like Russia or Gulf nations with trillions of dollars at their disposal ready to invest abroad.

Many large banks were forced to go cap-in-hand to sovereign wealth funds when the subprime mortgage crisis left them strapped for cash. Singapore's Temasek for example became the largest shareholder in Merrill Lynch.

But concerns that their motives may be political and not just economic have prompted a backlash, with many countries such as the U.S. bolstering their defenses against the funds' advances.

Critics slam the German legislation as protectionist and as likely to damage the German economy by frightening off much-needed foreign investment, and sovereign wealth funds themselves are making efforts to be more transparent. Economy Minister Michael Glos said though that the proposed new controls were "very restrained."

"Germany is and remains open for foreign investments," he said. "The majority of foreign investments will be unaffected."

One deal that the new legislation might block is the possible multi-billion-euro takeover of container shipping giant Hapag Lloyd, owned by German firm TUI, by Temasek.

The bid from Temasek, which has already publicly expressed interest in the company via its Neptune Orient Lines unit, is one of half a dozen or so that TUI has received, the Financial Times Deutschland reported in late July.

Copyright Agence France-Presse, 2008

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