Harper Rejecting Petronas Clouds Investment Talks in Asia
Prime Minister Stephen Harper’s reluctance to approve foreign investment by Asian state-owned enterprises such as China’s Cnooc Ltd. (883) may undermine his push to attract the capital Canada needs to develop its natural resources as he visits Asia for the third time this year.
Harper travels to India, the Philippines and Hong Kong Nov. 4 to Nov. 11, where he will tout Canada’s goal to “sell our energy to the world,” according to chief spokesman Andrew MacDougall. “That’s the goal in India, that’s the goal in the Asia Pacific region,” MacDougall told reporters yesterday.
That message may be clouded by the government’s resistance to takeovers by Asian state-owned companies, such as the C$5.2 billion ($5.2 billion) bid by Petroliam Nasional Bhd., known as Petronas, for Progress Energy Resources (PRQ) Corp. of Calgary, which was blocked last month.
“What’s the point of going to somebody’s house when you’re going to reject what they offer you?” said Sachin Shah, a merger arbitrage specialist at Tullett Prebon Americas Corp. in New York. “If you’re on the outside looking in, you’re saying ‘I can’t believe we have the money, the global economy’s not growing, and you believe that our opportunity to create jobs isn’t welcome.’”
Harper’s Natural Resources Minister Joe Oliver has said the country’s biggest resource projects will require nearly C$650 billion of investment to develop over the next decade. Harper, who has touted Canada as an emerging “energy superpower,” has called it a national priority to build infrastructure that will let Canada diversify energy exports away from the U.S. and ship oil to Asia from the world’s third largest pool of reserves.
Harper has said he will clarify Canada’s foreign investment rules in a “policy framework” document that will be released when it makes a final decision on Beijing-based Cnooc’s $15.1 billion offer for Calgary oil producer Nexen Inc. (NXY), a deal he has said raises “difficult policy questions.”
A rejection of the Cnooc bid would “put to death immediately the concept of the energy superpower,” said Paul Evans, a professor of Asian affairs at the University of British Columbia in Vancouver.
“You cannot be an energy superpower without major foreign investments, by state-owned enterprises and others, in our oil and gas sectors,” Evans said by telephone. “This is our moment of maturity in coming to terms with the challenge of emerging economies and China in particular.”
While Canadian trade and investment with countries such as China and India is growing, the relationship remains tilted in the Asian nations’ favor. Canada posted a trade deficit of C$41.3 billion with Asia last year, an increase of 55 percent over the past decade, according to Statistics Canada data.
At C$63.7 billion, the amount Asian companies had invested in Canada last year was more than one and a half times the amount Canadian companies invested in Asia.
Those imbalances are something Harper wants to address on this trip. “In just a few days, I will be visiting India, for important talks with one of Canada’s good friends and partners, Prime Minister Manmohan Singh,” Harper said in the prepared text of a speech he gave yesterday in Ottawa.
“Our countries’ relations have been developing and deepening rapidly in recent years,” Harper said. “There is, however, a lot of room for the relationship to grow, especially in the areas of trade and investment.”
Oliver traveled to India last month on a trip aimed at boosting Canadian energy exports. Asked Oct. 29 how business people in India viewed the impact of the Petronas decision on the Canadian investment climate, Oliver said “they’re waiting to see the policy framework.”
While MacDougall told reporters that Canada needs investment and wants to sell energy to the world, China’s interest in Canadian energy assets has provoked unease among the public, something Harper has said the government takes into account. Fifty-eight percent of Canadians believe the government should block the Nexen (NXY) takeover, according to an online poll of 1,000 people taken Oct. 10 to Oct. 11 by Angus Reid Public Opinion. The main opposition in Parliament, the New Democratic Party, has opposed the bid.
“The real long-term problem politically is there is this large passive mistrust of Chinese investment,” said University of Calgary political science professor Tom Flanagan, a former adviser to Harper.
Despite the political pressure, the government will probably approve both the Cnooc and Petronas bids, Flanagan said. In blocking Petronas’ acquisition of Progress on Oct. 19, Industry Minister Christian Paradis gave the Malaysian state- owned company 30 days to appeal or make concessions.
Harper will probably use the policy framework to set limits on how much influence state-owned enterprises can have over Canada’s energy resources, Flanagan said in a phone interview. “It’s a refining of the message. Canada’s open for business but there’s a few hands-off areas.”
China seeks a “fair and objective assessment” by the Canadian government of foreign acquisitions by state-owned companies, Chinese Commerce Minister Chen Deming said in a Sept. speech in Toronto.
“In recent years more Chinese companies are going global for mergers and acquisitions,” Chen said through a translator. “Some of them are state-owned companies but they are independent business players and they strictly observe laws and regulations of host countries.”
Shares of Nexen rose 0.6 percent to $24.49 in New York, 11 percent below Cnooc’s offer price of $27.50, showing investors aren’t fully convinced the bid will be approved. Progress stock was little changed at C$20.33 in Toronto, 7.6 percent below the C$22 a share offer from Petronas.
Companies will be watching for signals from Harper on his evolving stance toward foreign capital, said Rana Sarkar, chief executive officer of the Canada-India Business Council, an organization based in Toronto that represents companies such as Bank of Nova Scotia (BNS) and Tata Consultancy Services Ltd. (TCS)
“More clarity, more direction would be helpful, so bidders would know what the game is,” Sarkar said in a telephone interview. “We don’t have an indefinite time frame to decide what we’re doing with our energy supply. The window won’t be open forever.”
Harper will meet Singh Nov. 6 and speak to the World Economic Forum meeting in Gurgaon, India on Nov. 7. He will also meet Philippines President Benigno S Aquino on Nov. 10 and Hong Kong Chief Executive Leung Chun Ying on Nov. 11.
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