David Ljunggren Ottawa
Canada signalled a tough line on control of its natural resources with its surprise rejection of a Malaysian bid for gas company Progress Energy Resources, putting concerns about state-owned firms above fears of damaging an already dented international reputation.
In a ruling with huge repercussions for CNOOC’s proposed $15.1 billion (R130.7bn) takeover of Nexen, Industry Minister Christian Paradis said the C$5.2bn (R45.3bn) bid by Petronas would not be of “net benefit” to Canada.
Although Paradis gave no reasons, Prime Minister Stephen Harper is facing legislators unhappy with the idea of doing business with China and also of letting foreign state-owned enterprises buy Canadian energy assets.
The decision – announced at three minutes to midnight on Friday and missing the deadlines for all Canadian newspapers – surprised senior officials in the government and was a painful reminder to the markets of how Ottawa vetoed BHP Billiton’s proposed takeover of fertiliser maker Potash in late 2010.
After the Potash decision, the government spent many months trying to reassure markets that Canada was still open for business. That effort continues today. Yet for all the talk of attracting investment, some firms are clearly less welcome than others, particularly state-owned enterprises such as Petronas and CNOOC, which critics complain do not play by market rules.
“We’ve joined a list of countries in which a lot more resource nationalism is being practiced… starting with Potash, muscle had started to be exercised a little bit,” said John Manley, a former industry and finance minister who now chairs the Canadian Council of Chief Executives.
“And I think that’s something that is not a total disaster, but it does cry out for some clarification so investors know what they’re dealing with,” he said.
Fund managers and arbitrageurs expressed frustration that Ottawa did not explain the decision. Harper’s chief spokesman, Andrew MacDougall, declined to comment, but noted that Petronas had 30 days to make changes to the bid.
Although Harper is secure, he is acutely sensitive to political criticism and has cited opinion polls opposing the CNOOC move.
The official opposition New Democrats, who say the CNOOC bid must be blocked, decried what they said was an opaque process for studying foreign takeovers.
“There will be serious implications if they keep making things up on the back of a napkin. Investors will lose confidence… This is no way to run a large economy,” said Peter Julian, the party’s natural resources spokesman.
A senior financial professional said that the Petronas move was “very bad for Canada. This is shocking… The tone out of the Harper government is not good.”
Harper has to ensure Canada can attract hundreds of billions of dollars in foreign investments for the energy patch, while placating his Conservative caucus, where suspicion of China is widespread.
“One obvious explanation is that this could be a step for Ottawa to increase the role of the state and to begin doing fairly regular interventions,” said Wenran Jiang, a senior fellow at the Asia-Pacific Foundation.
“It might be a way to make the rejection of Nexen look easier, saying ‘We already rejected a Malaysian takeover’… but in both cases the rejection [would] need to have convincing reasons,” he said.
Canadian legislators are also unhappy about problems facing Canadian firms in China, such as red tape and restrictive regulations.
Government officials stressed that they wanted to see more reciprocity from China, and the Petronas decision could be a way of exerting pressure on Beijing to make life easier for Canadian firms.
“The Canadian government is sending a message that if you want to get into Canada, you’re going to have to make sure that it’s beneficial to Canada. That’s not necessarily, in my view, a bad thing, especially when it comes to strategic resources,” said Martin Pelletier, portfolio manager with Trivest Wealth Counsel in Calgary. – Reuters