Canada ‘Resource Nationalism’ Behind Petronas Rebuff, Fitch Says

Petroliam Nasional Bhd.’s C$5.2 billion ($5.23 billion) bid to take over Progress Energy Resources Corp. (PRQ) was blocked by Canada’s “resource nationalism,” Fitch Ratings said.

The Malaysian state oil company’s takeover of Calgary-based Progress Energy was rejected by the Canadian government Oct. 19 as the deal won’t bring “net benefit” to the country. The rebuff was seen by investors as a test case for the $15.1 billion bid by China’s Cnooc Ltd. for oil and gas producer Nexen Inc. (NXY)

“Possible reasons for the rejection include the government’s desire to ensure that sufficient control and profits remain in Canada,” Fitch said in an e-mailed statement today. “This decision increases the likelihood that the Canadian government will also reject Cnooc’s bid to acquire 100 percent of Nexen.”

Petronas has 30 days to appeal or provide additional concessions, at which point the government will make a final decision, Canada’s Industry Minister Christian Paradis has said.

A Progress Energy takeover would have provided Petronas, as the Malaysian company is known, an opportunity to enlarge its reserves, diversify its product range and potentially start exporting liquefied natural gas from North America to Asia, Fitch said today. Petronas could provide Progress Energy with the investment needed for expansion, Fitch said.

Petronas’s long-term foreign currency issuer default rating was affirmed at A by Fitch in September, while the rating outlook was changed to negative. The shift reflects growing influence by the Malaysian government over Petronas’s financials and strategy, weakening the case for the state-owned firm to be rated above the sovereign, Fitch said. The ratings assessor gives Malaysia an A- grade.

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

To contact the editor responsible for this story: Barry Porter at bporter10@bloomberg.net

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