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The head of one of the country's leading miners believes Ottawa's failure to clarify foreign investment rules poses a major risk for shareholders.
Hudbay Minerals president and CEO David Garofalo, says the industry is concerned about the potential fallout for shareholders in mining companies if the government can step in and block a takeover.
"We don't want to see our shareholders disempowered if foreign investors -- Chinese or otherwise -- decide they want to come in and buy assets. We want a clear set of rules," he tells BNN. "If shareholders are disempowered, if the government vetoes these deals arbitrarily, effectively you're expropriating these assets from shareholders because they can't dispose of those shares as they see fit."
Garofalo’s comments come as Nexen investors await Ottawa's decision on Chinese oil company CNOOC's $15.1-billion offer for Calgary-based Nexen. The deal marks the first ever outright takeover of an oil patch company by a Chinese firm and puts the spotlight on Ottawa at a time when it's trying to nurture a stronger relationship with China.
Current federal regulations stipulate that any foreign investment worth more than $330 million must be approved by Ottawa and pass the "net benefit" test. As part of the test, lawmakers must weigh whether the deal will increase economic activity in Canada, employ Canadians and foster innovation, among other factors.
But ensuring that a foreign investment is of net benefit has proven to be a controversial – and highly political – process. Critics have warned that the test is vague and open to the whims of politicians, rather than a clearly established formula that evaluates every deal on similar terms.
Ottawa has repeatedly said that it would clarify the rules surrounding foreign takeovers, but to date, has failed to follow through on that promise.
The Nexen takeover is also the first of what some analysts believe will be a flood of foreign investment in the country's oil patch. Analysts at CIBC recently estimated that as much as $200 billion is needed to develop the current planned projects in the oil sands, with much of that money expected to come from Asia.
"Strategic capital through partnership, joint venture or acquisition from oil & gas companies outside of North America, primarily Asia, has closed the funding gap in past years and is expected to be necessary going forward," the analysts wrote.