Canada approved China's biggest ever foreign takeover on Friday, the $15.1 billion bid from CNOOC for energy company Nexen Inc., but drew a line in the sand against future buys by state-owned enterprises.
In a fierce defense of a tough, new foreign investment framework, Prime Minister Stephen Harper said Canada would not deliver control of the oil sands - the world's third largest proven reserves of crude - to a foreign government.
The ruling, anxiously awaited by investors and politicians alike, followed months of heated debate about how much of Canada's energy sector could and should be absorbed by companies run by other nations.
The bid triggered unusually open dissent among legislators in the ruling right-of-center Conservatives, many of whom were particularly nervous about the idea of allowing China to gain control of the oil sands.
Canada said yes to this deal, but will not do so next time. "To be blunt, Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead," Harper told reporters after Ottawa gave the deal the green light, along with approval for the less controversial takeover of gas company Progress Energy Resources Corp.
"Foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada," he added. CNOOC's bid had raised huge questions for Harper's Conservative government, which sought both to appear open for investment and to diversify Canadian energy exports toward Asia and away from the United States.
The strict new approach restricts state-owned enterprises to minority stakes in Canadian enterprises except in what Harper described as "exceptional circumstances". It will raise questions about how Canada can raise the C$650 billion ($657 billion) investment it says it needs in the natural resources sector in the next decade alone. Ministers say much of the money will have to come from abroad and cash-rich China is an obvious source.
Analysts said the new rules could please market operators who complain Ottawa was too vague about the kinds of foreign investment it wanted. Investment Canada, part of the industry ministry, must decide if takeovers are of net benefit to Canada, but critics say the process is opaque. The Conservatives shocked markets in October 2010 by unexpectedly blocking a bid by BHP Billiton Ltd for Saskatchewan-based fertilizer maker Potash Corp.
"This approval helps overcome some of the stigma that was associated with Investment Canada after the BHP rejection. I think it is good news for the perception of Canada as a destination for capital," said Oliver Borgers, a partner at McCarthy Tetrault in Toronto.