The Harper government’s new foreign investment rules for state-owned enterprises leave plenty of room for such companies to invest in Canada’s oil and gas sector, but investors need to consider not only the higher regulatory hurdles but an uneasy political climate, Canadian Imperial Bank of Commerce vice-chairman Jim Prentice says.
In a speech to an investors conference in Whistler, B.C., the former Conservative industry minister also warned that Canadians need to be wary lest their uneasiness with foreign, government-controlled companies results in Canada failing to attract needed capital for jobs and growth.
In a lengthy review of the government’s new guidelines which were released last month, Mr. Prentice said they strike a reasonable balance between ensuring that important parts of the economy do not fall under the control of foreign governments, and they attract much-needed capital.
“The new rules, at the most basic level, are a positive step for our country because they recognize and declare that Canada must and will remain open for business - and that means open to foreign investment,” Mr. Prentice said in the speech delivered late Thursday.
In December, Prime Minister Stephen Harper unveiled new rules that prohibit takeovers by foreign SOEs in the oil sands, and impose greater screening on other acquisitions by such companies to ensure they operate in a market-friendly manner and will not lessen productivity in the Canadian economy. As he announced the guidelines, Mr. Harper also approved CNOOC Ltd.’s bid for Nexen Inc. and the acquisition by Malaysia-based Petronas of Progress Energy Corp.
In an interview after his speech, the former minister said he has travelled to China since the new policy was released and has found that business leaders there are confident they can do business here, including making investments in the oil sands so long as they do not seek majority positions in that sector.
“There is a recognition that while the oil sands have been carved out in terms of changes of control in terms of oil sands resources by state-owned enterprises, there will still be amply M&A activity, but subject to increased regulatory uncertainty,” he said. But even with the new uncertainty, Canada’s is perceived as a more welcoming environment that most other developed countries.
He told investors that SOEs will likely have to shift their focus from acquiring mid-cap companies to partnering with larger firms in joint ventures. An example of that kind of deal was unveiled just days after Prime Minister Stephen Harper announced the new regime, with EnCana Corp. signed a $2.2-billion joint deal with PetroChina to jointly develop unconventional, liquids-rich gas fields.
The review of significant acquisitions by SOEs “have been and will remain primarily a political question,” he said, adding Ottawa has plenty of flexibility to interpret the new rules in the most politically advantageous way. “With the stakes this high, there is always the possibility - perhaps even the likelihood - that politics are going to trump policy.”
And he noted there is “enormous public sensitivity” to the acquisitions of significant resources assets by non-western SOEs.
However the former politician had a warning for Canadians: “As highly as we regard ourselves, our resources and our businesses, the hard truth is that people will move on and look elsewhere if ever we close ourselves off to the world, And with them will go potential jobs and opportunities.”
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