US Intervention in Chinese Clean Energy Tech Deal Highlights CFIUS Priorities, Law Firm Says
The recent intervention by the U.S. in a Chinese foreign investment deal further highlights the Biden administration's investment review priorities and the sometimes “complicated” and “time-consuming” nature of those reviews, Vinson & Elkins said in a Dec. 27 client alert.
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The Committee on Foreign Investment in the U.S. recently ordered China-based Borqs Technologies to divest from Holu Hou Energy (HHE), a Hawaii-based energy storage system company it had acquired in 2021, the law firm said. Borqs reported this month that CFIUS determined its investment raised “national security concerns tied to China’s potential access to HHE’s technology,” the law firm said, specifically HHE’s solar energy storage system and technology for multidwelling residential units, which qualified as a critical technology. Borqs plans to negotiate an agreement with CFIUS to complete the divestiture.
The case demonstrates CFIUS is “particularly aggressive in asserting its authority” for transactions involving critical technologies, Vinson & Elkins said. CFIUS looks to impose a mitigation agreement in most cases, but in this instance CFIUS “could not mitigate short of a divestiture,” the firm said. “[G]iven CFIUS’s heightened sensitivity surrounding critical technology U.S. businesses, CFIUS may be more likely to conclude that no package of mitigation measures short of a divestiture would be sufficient to address the national security concerns arising from such transactions.”
The firm also noted CFIUS’ decision to order the divestiture came more than a year after Borqs acquired the company, warning the committee may make a decision about a particular deal “well after” it closed. “Many nonpublic variables could have resulted in such a long timeframe between closing and the announced mitigation of divestiture,” Vinson & Elkins said. “But, at the very least, it appears likely that CFIUS undertook a lengthy review of Borqs’ acquisition of HHE.”
The case also demonstrates that advanced clean energy technology is a “top area of focus” for CFIUS, the law firm said, particularly after the Biden administration mentioned the technology in the first executive order to give specific presidential direction to how the U.S. conducts foreign direct investment reviews, which was issued in September (see 2209150053).
CFIUS was concerned that the Chinese government, “through Borqs’ software development and hardware sourcing capabilities,” would be able to “gain significant visibility and exert influence over HHE’s business operations and receive access to HHE critical technology,” the law firm said. “The concerns articulated by CFIUS to Borqs align with the risk factors outlined in the Biden Executive Order.”