Clarification on foreign takeovers needed now to assure overseas investors

Clarifying the rules on foreign takeovers will help Canadian lawyers advise their overseas clients, says one investment law partner.

John Boscariol, head of McCarthy Tétrault LLP's International Trade & Investment Law Group, has numerous foreign clients looking to invest in Canada but they're unsure about the approval process.

At a minimum, they need to understand what the Canadian laws and requirements are for foreign takeovers, says Boscariol.

"Whenever you have a system that allows more government discretion [and] less explanation of what factors the government takes into account in making decisions, that creates uncertainty, [which] makes jurisdiction unattractive to foreign investors," he says.

On Monday, Prime Minister Stephen Harper promised to reveal new guidelines soon on foreign takeovers after the government's surprise move last Friday to reject Malaysian state-owned oil company Petronas' $6-billion bid to take over Progress Energy Resources Corp., one of Calgary's natural gas producers.

"Right now we're in a pretty drastic situation where there's very little to guide foreign investors. In fact, the decisions that have come out — to some foreign investors — may not be so friendly," says Boscariol.

There are other big deals in the works that the government has yet to decide on, including Chinese state-owned CNOOC Ltd.'s $15.1-billion bid for Calgary-based Nexen Inc. and U.S. energy giant Exxon Mobil Corp.'s proposal to buy Western Canada's Celtic Exploration Ltd. for $3.1 billion.

Boscariol says foreign investors need some sort of assurance. "They're committing a huge amount of capital to the country, they need just some predictability as to how they will be treated [and] what the rules are," he says.

"It will depend on how they're drafted, but I presume that the guidelines in and of themselves will provide some certainty, so I think that's a step forward in making Canada a more favourable place for foreign investors," he adds.

Boscariol recognizes that it's a bit of a catch-22 situation in that having explicit guidelines on foreign takeovers reduces the government's discretion but, on the other hand, not having any guidelines deters foreign investment.

"Whenever government comes up with guidelines, to an extent they're handcuffing themselves — they're putting something out there, they're putting it in writing. So I can see why, from the government's point of view, it may make sense to be as flexible as possible; to retain as much opportunity as possible to treat different foreign investors differently," he says.

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