Reprinted from The Wall St. Journal on October 22, 2012
Canada’s rejection of Petroliam Nasional Bhd.’s bid of roughly 5.18 billion Canadian dollars (US$5.21 billion) for a natural-gas producer has sown worry among big Chinese investors that Ottawa might be rolling up the welcome mat it long has had out for Asian companies.
Opposition in Canada to a bid by Malaysia’s Petronas for one of its gas companies could signal tough times for Asian companies seeking acquisitions in North America. The WSJ’s Simon Hall tells us why the Petronas deal could set a bad precedent.
The rejection of the Malaysian company’s offer for Progress Energy Resources Corp. PRQ.T -10.62% also has ratcheted up uncertainty over a much larger pending deal, the US$15.1 billion agreement by Cnooc Ltd. 0883.HK +0.49% of China to acquire Nexen Inc., NXY.T -4.97% one of Canada’s largest independent energy producers, with operations or assets in Canada, the U.S. Gulf of Mexico and the North Sea. That deal, on which Canada could rule as early as mid-November, widely has been seen as Beijing’s most ambitious recent effort to test its reception in the booming North American oil patch.
“With the Petronas objection, all eyes are on the Cnooc-Nexen deal now,” said a mergers-and-acquisitions banker advising Chinese companies.
But even before the Canadian government rejected the much smaller Petronas deal, some big Chinese investors—such as sovereign-wealth fund China Investment Corp.—had started to become wary about the Canadian government’s view of its investment rules. While China has invested heavily in the U.S. and Canada in recent years, especially amid the global economic slump, many investors have long seen Canada as more accommodating, especially in the energy patch.
In countries such as Mongolia, Australia and the U.S., governments have increased their scrutiny of Chinese investment. Canada has stood out as especially welcoming. With small capital markets of its own, Canada has relied on foreign investors to develop its vast energy reserves. While that has largely come from the U.S. in recent decades, Asian companies increasingly have been drawn to Canada’s energy patch—and have been received warmly.
But some Chinese investors are starting to question whether that is changing. After the Cnooc-Nexen deal was announced, Canadian Prime Minister Stephen Harper said it posed special considerations because of its size and Cnooc’s role as a state-owned company.