La Silla Rota: Foreign investors may exceed 49% ownership under constitutional reform

The Mexican government has proposed amending the Foreign Investment Law so that foreign capital may exceed 49% ownership in companies operating in strategic sectors, subject to prior authorization from the National Investment Commission in each transaction. The bill was submitted by President Claudia Sheinbaum to the Senate.

The sectors covered include energy, communications, transportation, aerospace, data storage, digital systems, healthcare, mining, defense, and sensitive facilities. The bill also covers critical technologies and dual-use products such as artificial intelligence, robotics, semiconductors, cybersecurity, aerospace and defense technologies, energy storage, quantum and nuclear technologies, nanotechnologies, and biotechnologies.

Article 30 Bis of the bill establishes that, for national security reasons, a favorable resolution from the Commission will be required for foreign investment to hold, directly or indirectly, more than 49% of the share capital of a Mexican company whose total asset value exceeds the threshold set by the Commission and which operates strategic infrastructure whether physical or virtual.

The current framework and its limits

Today, the Foreign Investment Law caps foreign ownership between 10% and 49% depending on the activity. The 49% ceiling applies to domestic air transportation, air taxi services and specialized air transportation, to the supply of fuel and lubricants for vessels, aircraft and railway equipment, as well as to broadcasting.

Other activities remain reserved for Mexican nationals or Mexican companies with a foreigner exclusion clause: domestic land transportation of passengers, tourism and freight —excluding courier and parcel services—, retail gasoline sales, and the distribution of liquefied petroleum gas.

Certain areas also remain exclusive to the State such as the exploration and extraction of oil and other hydrocarbons under Article 27 of the Constitution; planning and control of the national electric system; transmission and distribution of electricity; nuclear power generation; radioactive minerals; telegraph, radiotelegraph and postal services; issuance and minting of currency; and the control, supervision and oversight of ports, airports and heliports.

A strengthened National Investment Commission

"The amendment to the Foreign Investment Law strengthens the National Investment Commission by incorporating agencies tied to security, intelligence, finance and strategic sectors," said Pedro Canabal, Partner at Baker Tilly in Mexico.

The agencies to be incorporated include the heads of National Defense, the Navy, and Security and Civilian Protection. In addition, authorities and representatives from the private and social sectors related to the matters under discussion may be invited to the sessions, with a voice but no vote in the decisions.

In sessions addressing national security matters, the heads of the Attorney General's Office, the National Intelligence Center, the Tax Administration Service and the Financial Intelligence Unit will participate on a permanent basis, also with a voice but no vote. The Commission may convene at any time at the President's request when matters so require.

Canabal noted that the bill creates a new national security approach by establishing a specific mechanism to review foreign investments that may have implications in sensitive areas.

A 40-day resolution period

The bill shortens to 40 days the period for the Commission to resolve the applications submitted to it, five days less than the current timeframe. When matters involve national security, the provisions of Title Six Bis of the law will apply.

If the Commission does not issue a resolution within that period, under Articles 8 and 9 of the Foreign Investment Law the application will be deemed automatically approved under the bill. Canabal added that the Commission may authorize, authorize subject to conditions or block the acquisition when there is a national security risk.

At Baker Tilly we support companies in the regulatory analysis of transactions involving foreign investment and in preparing applications before the National Investment Commission.

Article originally published in La Silla Rota, by José Manuel Arteaga.