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Foreign Investors Heed A Few Unofficial Rules

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By CHRISTOPHER S. RUGABER, The Associated Press

Published: November 29, 2007

WASHINGTON - Government-backed investors from the Middle East and China have pumped billions of dollars into U.S. companies this year without stirring the kind of national security concerns that have scuttled previous deals.

The key to their success appears to be in following a few critical, if unofficial, rules of engagement:

• Buy small stakes, not entire companies.

• Emphasize that board membership, or other control, is not in the game plan.

•Consult in advance with federal agencies and elected officials likely to be sensitive.

•Avoid certain sectors, such as energy or government contracting - though if the stake is small enough, it may not be an issue.

Most of these steps were followed in the year's biggest foreign investments in the United States, including an Abu Dhabi investment fund's $7.5 billion purchase on Monday of a 4.9 percent stake in Citigroup Inc., the nation's largest bank. The deal was hailed by Sen. Chuck Schumer, D-N.Y., who in the past has been one of the quickest and loudest critics of foreign investments he deems to be harmful to the United States.

"There is an emerging way of doing business," said Craig King, an attorney at Arent Fox who has shepherded many investments through a government review process. "People are becoming more comfortable with structuring deals in ways that avoid hitting the national security tripwires."

Other recent deals that touched off few, if any, political complaints include the Nov. 16 Abu Dhabi-based Mubadala Development Co.'s $622 million purchase of an 8.1 percent stake in chip maker Advanced Micro Devices Inc. and its $1.35 billion purchase Sept. 20 of a 7.5 percent stake in private-equity fund the Carlyle Group.

The more careful approach by foreign investors - and their U.S. beneficiaries - grew out of the controversy that erupted last year when a Dubai state-owned company sought unsuccessfully to purchase operations at six U.S. ports, King and other experts said. It also reflects the growing necessity of so-called sovereign wealth funds to find ways to spend the billions of dollars the global economy has delivered to them.

To be sure, the deals also benefit struggling U.S. companies that need cash. Citigroup has said it expects to take $17 billion in credit losses due to rising mortgage defaults, while AMD needed an infusion of capital to better compete with Intel Corp.

U.S. companies and politicians also view less hostility toward foreign investment at home as a way to make it easier for American companies to gain access to markets abroad, especially in China.

The Bush administration has sought to emphasize that the United States is open to foreign investment. In a Nov. 13 speech, Commerce Secretary Carlos M. Gutierrez said, "We're committed to providing all foreign investors fair, equitable and nondiscriminatory treatment."

However, U.S. officials joined finance ministers from the world's richest countries in October in citing concerns about sovereign wealth funds' lack of transparency and potential to gain stakes in companies linked to national security.

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