Aecon’s contentious sale to CCCC could give Canadian firm ‘passport’ to China

$1.5B deal touted as chance to join one of world’s biggest infrastructure projects

MONTREAL The chief executive of Aecon Group Inc. said Tuesday that its sale to a foreign buyer would be a major boon for the company to grow its international operations — an expansion that could include a foothold in China’s sprawling One Belt, One Road initiative, according to observers.

Aecon CEO John Beck said its proposed acquisition by a subsidiary of state-owned China Communications Construction Co. (CCCC), one of the largest construction firms in the world, would provide much-needed financial relief to the Canadian construction company, allowing it to compete against foreign conglomerates in overseas markets.

“We already do some international work, we would do more as we develop our balance sheet strength,” he said.

The $1.5-billion acquisition of Aecon is currently under national security review by Investment Canada, after the proposed deal prompted heated criticism from some Canadian construction firms and Members of Parliament in Ottawa. The final deadline to close the deal is mid-July.

Domestic firms including Ledcor Group, Graham Construction and PCL Constructors Inc. have voiced their concerns, saying the deal would give Aecon an unfair advantage over its rivals in project bids. Other critics argued the sale would be a threat to national security.

Beck has repeatedly pushed back against both claims, saying Aecon doesn’t possess the sort of sensitive intellectual property that would threaten national security, and that the domestic market is already flooded with large multinational conglomerates that have continued to outbid local firms. Canadian construction companies have struggled in recent years to challenge competing bids from South Korean, Chinese, European and U.S. firms, Beck said. “It’s frustrating to have to be bulking up with foreign (firms) to be able to compete on your own land — so we’re looking for a way to bulk up.”

Some observers have said that an under appreciated aspect of Aecon’s sale to CCCC is that it would provide the Canadian firm a direct line to China’s Belt and Road initiative, China’s roughly US$2-trillion plan to considerably widen its trade ties with Europe and Asia. The plan marks one of the most ambitious infrastructure build outs in history, expanding China’s road, rail and sea networks across the world.

“One argument that has been made is it would give Aecon the so-called ‘passport’ to China,” said York University Prof. Gregory Chin.

CCCC is expected to be China’s single-largest beneficiary of the Belt and Road proposal, according to research by DBS Group. By the end of 2016, the company had US$93 billion in project backlogs alone, mostly tied to Belt and Road developments outside of China.

For foreign companies who want to secure a toehold in the Chinese market, it is typically necessary to have ties to a local firm, said Chao Chang, the chairman of Sino Global Investment Holdings Co., Ltd., a US$100-billion investment fund based in Taiwan. “You could always build your own network, but that would take years — probably you’ll go nowhere,” he said.

Chang was in Montreal on Tuesday pitching his fund to local financiers looking for access to One Belt, One Road projects.

Analysts say it is becoming increasingly difficult for Canadian firms to grow locally, due to a lack of major new developments and a shortage of capital.

Prime Minister Justin Trudeau’s promise to stimulate the economy through a massive infrastructure has not yet taken hold, said York University ’s Chin, perhaps leading companies to look elsewhere.

That waning interest may be worsened by the failure of major project proponents, particularly for oil pipelines, hydro dams and other energy developments, to reach completion.