CANADA: Policy statement and revised guidelines on Canada foreign investment by state-owned enterprises

Monday December 10 2012

The Minister of Industry has announced clarifications to the Canada foreign investment review process to ensure Canada continues to benefit from inward flows of capital that create economic growth, jobs and prosperity in Canada.

To continue to attract capital and technology, the Government is improving the Canada foreign investment review process to focus on the most significant transactions. At the same time, the Government is providing clarity on how Canada assesses investments by state-owned enterprises (SOEs). The Government is also allowing for the extension of timelines, where necessary, for national security reviews.

Among others, the Government has announced the following:

• Clarifying how proposed investments by foreign SOEs are reviewed under the Act: As part of the foreign investment review process, the burden of proof is on foreign investors to satisfy the Minister that a particular investment is likely to be of net benefit to Canada. Investments by foreign SOEs to acquire control of a Canadian oil sands business will, going forward, be found to be of net benefit on an exceptional basis only. The Minister will also continue to carefully monitor SOE transactions throughout the Canadian economy. In particular, the Minister will closely examine: the degree of control or influence a state-owned enterprise would likely exert on the Canadian business that is being acquired; the degree of control or influence a state-owned enterprise would likely exert on the industry in which the Canadian business operates; and the extent to which a foreign state is likely to exercise control or influence over the state-owned enterprise acquiring the Canadian business. Non-controlling minority interests in Canadian businesses proposed by foreign SOEs, including joint ventures, will continue to be welcome in the development of Canada`s economy. Transactions will continue to be reviewed by the Minister on a case-by-case basis.

• Revising the guidelines for SOEs to clarify that free enterprise principles and industrial efficiency are considered in reviews where the investor is owned, controlled or influenced – directly or indirectly – by a foreign state.

• Amending the review threshold under the Investment Canada Act: Based on a recommendation by the Competition Policy Review Panel in 2008, the Government will be progressively increasing the review threshold to $1 billion. This will focus reviews on the most significant transactions. The basis for the calculation of the threshold will also be changed from asset value to enterprise value to more accurately reflect the market value of businesses and capture the increasing importance of the service and knowledge-based industries of our economy. In the case of investments by SOEs, the existing net benefit threshold of $330 million in asset value will remain in place and will be adjusted annually to reflect the change in nominal gross domestic product in the previous year.

• Providing the Minister with the flexibility to extend the timelines for national security reviews to give the Government the time it needs to conduct careful and thorough reviews of complex proposed investments that could be injurious to national security.

The Statement Regarding Investment by Foreign State-Owned Enterprises can be accessed here.

The Guidelines on Investment by state-owned enterprises regarding the net benefit assessment can be accessed here.

Click on the above link for more details.