October 2, 2018 / 9:37 AM / 18 days ago

Hungary adopts law to control foreign investment in sensitive sectors

* Government says aims to bolster national security

* 12 EU countries have such review mechanisms in place

* Survey sees growing tide of inbound investment into EU

BUDAPEST, Oct 2 (Reuters) - Hungary’s parliament approved new regulations on Tuesday requiring investors from outside the European Economic Area to get government clearance before buying assets seen as sensitive to national security.

The bill - which still needs to be approved by the president - follows an EU-wide call for greater scrutiny of foreign investments, part of a bid to respond to a flurry of Chinese acquisitions in the bloc.

Hungarian government officials said it would not focus on particular countries, but was meant to keep key sectors - such as the production of arms and ammunition, financial services and public utilities - under national control.

Since sweeping to power in 2010, Hungarian Prime Minister Viktor Orban’s government has reclaimed state control of large swathes of the economy, buying back stakes in major energy firms, public utilities and banks from mostly western European owners.

The regulations, expected to come into force next year, “may impact how many Hungarian merger and acquisition transactions are structured,” multinational law firm CMS said in a note.

Under the terms of the law, investors from outside the European Economic Area would have to get government clearance to buy more than 25 percent of private companies in Hungary, and 10 percent of public companies.

The bill gives the government the power to decide which sectors are classed as critical. The clearance process can take 60 days, or longer, if an appeal is lodged, according to the text of the bill.

The bill would allow the state to take action “against investors from third countries into certain critical industries,” the Interior Ministry said.

A market survey by CMS said an overwhelming majority of respondents expect an increase in the number of acquisitions of European companies by non-European investors next year, with U.S. buyers dominating, followed by Japan and China.

Twelve EU countries have such review mechanisms in place, including Austria, Denmark, Germany, Finland and France. (Reporting by Gergely Szakacs Editing by Andrew Heavens)

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