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Blame CEOs for Slowing Chinese Investment, Coates Says

Michael Coates has some words of advice for Canadian executives: be careful what you wish for.

Coates, who built Hill+Knowlton Strategies into Canada’s top foreign-takeover consultancy, said myopic business leaders are more responsible than Prime Minister Stephen Harper for the country’s stricter foreign takeover rules and the resulting loss of capital investment from countries such as China.

“All politicians do is respond to the pressure they are put under,” New York-based Coates, 58, now chief executive officer of Hill+Knowlton Strategies Americas region, said in an interview. “Mr. Harper understands full well that we need to be an open economy. Let’s not let parochial politics affect our reputation as an open marketplace.”

Coates, a Conservative Party organizer and former aide to Harper, also lobbied on behalf of Cnooc Ltd. during the Beijing-based company’s $15.1 billion acquisition of Calgary oil producer Nexen Inc., and counseled Melbourne-based BHP Billiton Ltd. on its failed hostile bid to buy Potash Corp. (POT) of Saskatchewan Inc.

Chinese acquisitions in Canada’s energy sector cooled in 2013 to less than $100 million after a record $20 billion in 2012, which included the Cnooc-Nexen deal, according to data compiled by Bloomberg. The slowdown came as Harper imposed limits in 2012 on oil-sands purchases by state-owned enterprises after having been pressured by Canadian oil companies to stop Chinese takeovers of local energy firms.

Gnashing Teeth

Coates, who advised Harper in three election campaigns, said it’s ironic that many of the complaints about the lack of Chinese investment now are coming from the Alberta business community, which earlier pressured Harper to curb capital from the Asian country.

“I’m rather amused when I hear gnashing of teeth from the oil patch about the government’s guidelines because the people who pushed for them are from the oil patch,” he said.

The Cnooc-Nexen deal was controversial in Alberta. Oil executives met investment bankers, lawyers and cabinet minister Jason Kenney to discuss ways of blocking the deal, Bloomberg News reported in May.

The last major Canadian acquisition by a China-based company was PetroChina Co.’s C$1.19 billion ($1.1 billion) purchase of a 49.9 percent stake in an Alberta shale formation one week after Harper’s state-owned enterprise ban.

Hill+Knowlton Strategies Canada, a division of London-based WPP Plc, advised in almost a quarter of the country’s 50 largest foreign takeovers and attempted takeovers during the past decade, including four of the five biggest, according to data compiled by Bloomberg from company filings and records kept by the country’s lobbying commissioner.

Biggest Overhaul

Coates, as head of the Canadian business before he became CEO of the Americas region this month, advised on proposed transactions worth about C$160 billion over the past decade according to Bloomberg calculations. He witnessed the biggest overhaul of Canadian foreign investment rules in more than two decades under Harper.

That overhaul followed a decade of foreign acquisitions of some of Canada’s largest natural-resource companies. Switzerland’s Xstrata Plc made a successful bid in 2006 for nickel producer Falconbridge Ltd, the year Brazil’s Vale SA agreed to buy Toronto-based miner Inco Ltd. London-based Rio Tinto Group acquired aluminum producer Alcan Inc. in 2007.

Politicized Process

More recently, Harper has blocked takeovers on national security grounds and concerns over the loss of strategic resources. In 2010, he rejected BHP’s $40 billion bid for Potash on the grounds it wasn’t in the country’s interests to sell the world’s biggest fertilizer company to outside interests. Then in December 2012, Harper unveiled the rules to prevent state-owned enterprises from acquiring control of oil sands businesses, even as he approved the Cnooc-Nexen deal.

“What is happening around the world globally is foreign investment is becoming very politicized,” Coates said. “In the past, I think assumptions were made that whatever you did, regulatory approvals would be forthcoming and that assumption can’t be made any more.”

Even Warren Buffett isn’t immune. Nancy Southern, chief executive of Calgary-based Atco Ltd., has lobbied the federal and provincial governments to reject the proposed purchase of Alberta power utility AltaLink by Buffet’s Berkshire Hathaway Inc. Harper’s government approved the deal last week, however it still needs provincial regulator support.

While concerned about the impact of some of the tighter rules, Coates said Canada still remains one of the most open places for investment. He cites the AT Kearney Foreign Direct Investment Index, which places Canada third behind the U.S. and China.

“When you look at it in the context of everyone else, Canada continues to be a very open market,” Coates said. “My message is, let’s just keep it that way.”

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier

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