How would this fare under the TPP agreement?
Ottawa
approves Nexen, Progress foreign takeovers
Prime
Minister Stephen Harper has erected new barriers to investment by
state-owned companies, fencing off the oil sands from further control
by foreign governments.
8
December, 2012
Mr.
Harper announced Friday that his government has approved two
controversial acquisitions by Asian companies of domestic oil and gas
producers, but essentially barred state-owned companies from buying
some of Canada’s biggest energy companies, such as Suncor Energy
Inc. or Cenovus Energy Inc.
“When
we say that Canada is open for business, we do not mean that Canada
is for sale to foreign governments,” he told a news conference on
Parliament Hill.
With
his announcement Friday, Mr. Harper sent a clear and unambiguous
statement that Canada will welcome foreign investment on its own
terms, even as powerhouse state-owned companies from emerging markets
like China increasingly gain sway in the global marketplace.
The
new rules, while cheered by industry, marked a dramatic shift away
from Ottawa’s traditionally more open policy, which allowed a wave
of foreign takeovers in the natural resource sector in recent years.
It
is also an abrupt departure from the government’s unqualified
wooing of investment from China and elsewhere in Asia, where large
resource companies tend to be state-controlled and have a mandate to
acquire secure access to energy and other commodities for their
countries. Mr. Harper and his ministers have travelled frequently to
China in recent years to pursue new commercial relations, but the new
hurdles for Chinese investment risk putting a chill on that
relationship.
Felix
Chee, head of the Canadian branch of China Investment Corp., one of
that country’s largest investment funds and an active minority
investor in Canadian resource companies, said the news rules could
change the tone of business relations.
“This
appears to be stringent,” he said. “I am pleased to see the
[Nexen and Progress] deals approved. But going forward one would
expect Chinese companies to re-evaluate their investment plans in
Canada to ensure they can still make desirable investments under the
new rules. What remains to be seen is whether the flow of inbound
investment from China will be lower.”
The
Prime Minister insisted Friday that Ottawa still welcomes foreign
investment generally, and even capital from state enterprises but
will apply high standards if they seek control of an existing
Canadian company rather than merely minority stake or joint ventures.
But he said the oil sands account for 60 per cent of the world’s
oil production that is not in the hands of national oil companies,
and that it is important to ensure it remains out of government
hands.
His
government approved the $15.1-billion bid by China’s CNOOC Ltd. for
Calgary-based Nexen Inc., and the $6-billion acquisition by
Malaysia’s Petronas of Progress Energy Resources Corp. as
representing a “net benefit” to Canada. The government said both
companies made “significant commitments” to operate commercially,
to maintain Canadian management and employment levels, and to provide
transparency in how they operate. But, under the Investment Canada
Act, those undertakings remain confidential unless the companies
agree to release them.
Investors
around the world have been waiting for months to see how Mr. Harper
would handle the takeovers – as have other foreign governments,
such as Australia’s, that are grappling with a flood of Chinese
capital in search of assets to buy.
Barring
state-controlled investors from new takeovers in Canada’s oil sands
and making it tougher for these entities to buy assets elsewhere in
the country is the latest populist move from a government that has
shown it has no qualms about keeping unwanted capital at bay.
“To
be blunt, Canadians have not spent years reducing ownership of
sectors of the economy by our own governments only to see them bought
and controlled by foreign governments instead,” Mr. Harper told
reporters.
Mr.
Harper and his government have aggressively courted investment from
Asia to develop the resource sector, but have now responded to public
concerns about the loss of control and pulled back the welcome mat.
Some 20 per cent of deals review by Investment Canada last year
involved takeovers by state-owned enterprises, up from virtually nil
in 2008.
Over
the next five years, Ottawa will raise the threshold at which it
reviews foreign takeovers by private-sector bidders to $1-billion.
But the bar will remain at $330-million for foreign state-owned
enterprises. Also, the federal government will consider the degree of
control or influence a state-owned enterprise would likely exert on
the Canadian business and, similarly, on the related Canadian
industry.
Ottawa
will also consider the extent to which the foreign government in
question is likely to exercise control or influence over the
state-owned enterprise acquiring the Canadian business. Mr. Harper
said that final criterion is the most important one, and will force
Ottawa to differentiate between government-controlled companies like
Norway’s Statoil – widely seen as an independent operator – and
Chinese firms like CNOOC, PetroChina and Sinopec, which have been
major investors around the world.
The
approval of the Nexen deal is a major victory for CNOOC and gives the
green light to the largest Chinese overseas takeover to date. CNOOC
was rebuffed in a 2005 attempt to acquire U.S.-based Unocal Corp.,
and is now awaiting U.S. approval to acquire Nexen’s Gulf of Mexico
assets.
The
federal government has said Canada needs $650-billion to finance
resources development and that much of that capital will have to come
from overseas, where state-owned companies dominate the landscape.
Ottawa believes the oil industry will be able to raise sufficient
capital to fuel the ambitious growth plans for the oil sands without
the need for further foreign acquisitions of existing producers in
the sector.
The
new rules
- State-controlled investors are barred from new takeovers in Canada’s oil sands, to be found to be of net benefit on “an exceptional basis only.”
- Ottawa will raise the threshold at which it reviews foreign takeovers by private-sector bidders to $1-billion, over the next five years.
- The bar remains at $330-million for foreign state-owned enterprises.
- “Free enterprise principles” will be considered in reviews where the investor is owned, controlled or influenced by a foreign state.
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