Energy ruling a ‘strong message’
Other sectors may be affected
Prime Minister Stephen Harper may have been talking specifically about the oilsands when he shut the door to foreign state-controlled takeovers, but his intentions could extend beyond Canada’s energy sector.
By raising the threshold of review for all foreign takeovers except those spearheaded by government-run companies, Harper is in effect telling every area of the economy that corporate control by state-owned firms is not welcome in Canada, say some observers.
“They’ve sent a signal,” said Paul Boothe, a former deputy minister of industry who is now a professor at the Richard Ivey School of Business at Western University in London, Ont.
“He’s pretty clear he doesn’t like state-owned enterprises.”
Under the new rules announced Friday in conjunction with Ottawa’s approvals of the
CNOOC takeover of Nexen and the sale of Progress En- ergy to Malaysia’s Petronas, the federal government said it would gradually raise the threshold for scrutinizing takeovers to $1 billion.
But that extra leeway does not apply to state-owned enterprises. Instead, Ottawa will review any SOE transaction over $330 million. And it broadened the definition of what constitutes a state-owned firm.
“What they’re doing is they’re raising the threshold for all but state-owned enterprises,” Boothe said. “That’s a pretty strong message. They’re discouraging acquisitions for control by state-owned enterprises.”
Indeed, Harper has already suggested his “No” to more state-owned control of the oilsands could also be applied to other sectors of the Canadian economy.
In extensive comments last Friday, he said he only dealt with the oilsands because the $15.2-billion CNOOC-Nexen transaction — the biggest in Canada since Suncor bought Petro-Canada in August 2009 for about $18 billion — put that sector into play.
Harper made it clear he won’t stop there.
“What I would say is ... we will watch carefully other sectors of the economy to ensure that this situation does not develop in those sectors as well.”
It remains unclear, however, what the threshold would be to trigger a similar ban on SOE investment in other sectors.
Also uncertain is the impact Ottawa’s tougher rules will have on foreign investment in the oilsands, an issue widely debated Monday.
Natural Resources Minister Joe Oliver, who has said Canada needs to attract $650 billion to develop its resources, said limits to state-owned enterprise investments in the oilsands will not restrict flow of capital into the oilpatch.
“There is a huge amount of a capital available globally, and quite a bit available inside the country and in fact the oilsands have been financed overwhelmingly by the private sector,” the minister told reporters on the sidelines of the Canadian Association of Petroleum Producers conference in Toronto.
However, Oliver said that under the new rules, the CNOOC-Nexen deal may not have been approved.
Such approval “would have been difficult because it would had to have been an exceptional situation,” Oliver said following his speech.
While Ottawa didn’t feel that the Nexen acquisition “was excessive,” new rules are “now in place,” he added.
Walid Hejazi, a professor of international competitiveness at the Rotman School of Management at the University of Toronto, said there is a risk there won’t be enough capital to replace what state-owned companies could have brought. This could boost costs for Canadian producers while U.S. rivals are finding new ways to tap reserves and a sluggish world economy limits resource prices.
The implication for Canada is that “a lot of these ventures are not going to reach their potential because of a lack of access to capital,” said Hejazi.
Going forward, Alberta Energy Minister Ken Hughes said “there is a potential for less investment coming into the oilsands,” which he, too, said would increase the cost of capital and production.
The chances of a major collapse in investment triggered by Ottawa’s tougher rules was discounted, however.
Analysts noted that while Ottawa narrowed the opening for SOEs, it hasn’t shut the door. SOEs can still buy up a minority stake in the oilsands, and private foreign firms can still acquire control. Also, under “exceptional” circumstances — a term that remains undefined — SOEs would still be able to acquire majority ownership.
“I think the government has played this brilliantly actually,” said Hal Kvisle, chief executive of Calgarybased Talisman Energy.
“The phenomena that’s been going on here lately, that I have not supported, is Canadian companies have been evolving to quick development enterprises, build up a land position, get it to a certain size and sell it out to the highest bidder.”
The new rules were aimed at giving clarity to investors and providing discretion to the government, Harper said during a rare Monday appearance in question period.
“We need discretion to make sure that when we are dealing with foreign governments this government has the capacity to protect the best interests of this country and its citizens,” he said.
In Monday trading, some smaller players were taken to the barber. For some, it was a haircut; for others, a light trim. As expected, Nexen shares jumped more than 13 per cent to close the day at $26.44 while Progress stock rose 13.37 per cent to $21.96 — near the levels of their purchase prices.
Some smaller firms didn’t fare as well. MEG Energy Corp. slumped $1.07 to close at $33.65, Connacher Oil and Gas fell more than 20 per cent, while Athabasca Oil Corp. lost early before recovering somewhat to close down 25 cents to $10.