Canada: Canadian Government Clarifies Policy On Foreign Investments By State-Owned Enterprises

On December 7, 2012, the Canadian government released a policy statement and revised guidelines for investments by foreign state-owned enterprises (SOEs) that are subject to a net benefit review under the Investment Canada Act (ICA).

The government also announced that the Minister of Industry had approved investments by CNOOC Limited, a Chinese SOE, to acquire Nexen Inc., and by Petronas, a Malaysian SOE, to acquire Progress Energy Resources Corp. However, details of undertakings provided by CNOOC Limited and Petronas to obtain these approvals were not announced.

Background: Investment Canada Act Reviews

A direct acquisition by a non-Canadian of control of a Canadian business that surpasses a prescribed financial threshold (currently assets with a book value of more than C$330 million) cannot be completed until and unless the foreign investor satisfies the Minister of Industry that the transaction is likely to be of net benefit to Canada. Traditionally, foreign investors have satisfied the net benefit requirement by providing undertakings that address factors such as employment, capital expenditures, research and development, and participation of Canadians in the management of the Canadian and global operations of the acquired business.

In the case of investments by SOEs, pursuant to guidelines issued in 2007, the Minister has also considered the corporate governance and reporting structure of the SOE to assess whether Canadian standards of transparency and independence of board members and auditors, for example, are maintained. The Minister has also assessed whether post-acquisition the Canadian business will continue to operate on a commercial basis. The guidelines suggested that the listing of shares of the acquiring company, or the Canadian business being acquired, on a Canadian stock exchange is an example of how an SOE could enhance an ICA application in this regard, as the Canadian business would be subject to the requirements for public companies in respect of governance, audits, disclosure and financial reporting.

The ICA has a separate review mechanism, introduced in 2009, for investments that raise national security concerns. Such reviews can be initiated with respect to a wide range of investments, including investments that are below the general net benefit review thresholds.

SOE Policy Statement and Guidelines

The policy statement and revised SOE guidelines released on December 7, 2012 establish the following framework for reviewing proposed investments in Canadian businesses by foreign SOEs:

  • Foreign investors will continue to have the burden of proof to satisfy the Minister that a particular investment is likely to be of net benefit to Canada.
  • SOE investments will continue to be evaluated on a case-by-case basis, but investments by foreign SOEs to acquire control of a Canadian oil sands business will be found to be of net benefit only in exceptional circumstances – non-controlling minority interests in Canadian businesses proposed by foreign SOEs will continue to be welcome.
  • In assessing the net benefit of an SOE investment, the Minister will examine:

    • the extent to which a foreign state is likely to exercise control or influence over the entity acquiring the Canadian business – an important revision to the SOE guidelines is the expansion of the definition of an SOE to include, in addition to entities that are owned or controlled by a foreign government, entities that are merely influenced, directly or indirectly, by a foreign government;
    • the degree of control or influence an SOE would likely exert on the Canadian business that is being acquired and on the industry in which the Canadian business operates. Where, due to a high concentration of ownership, a small number of acquisitions of control by SOEs could undermine the private sector orientation of an industry, and consequently subject an industrial sector to an inordinate amount of foreign state influence, the government will act to safeguard Canadian interests;
    • the corporate governance and reporting structure of the foreign SOE, including whether it adheres to Canadian standards of corporate governance and to Canadian laws and practices, including free market principles;
    • whether the Canadian business to be acquired by the foreign SOE is likely to operate on a commercial basis, including with regard to where products will be exported or processed, the participation of Canadians in its operations in Canada and elsewhere, the impact of the investment on productivity and industrial efficiency in Canada, support of ongoing innovation, research and development in Canada, and appropriate levels of capital expenditures to maintain the Canadian business in a globally competitive position; and
    • specific undertakings offered by the foreign SOE to address the above-noted issues, including, for instance, the appointment of Canadians as independent directors of the Canadian business, the employment of Canadians in senior management positions, the incorporation of the business in Canada and the listing of shares of the acquiring company or the Canadian business being acquired on a Canadian stock exchange.

  • While the government will be progressively increasing the review threshold under the ICA to C$1 billion in enterprise value, investments by SOEs will continue to be subject to the existing review threshold of C$330 million in asset value, adjusted annually to reflect the change in nominal gross domestic product in the previous year.

SOEs and National Security

In conjunction with the new SOE guidance, the government announced that it will propose amendments to enable the Minister to extend the time available to conduct national security reviews of proposed foreign investments, although such extensions would be used only in exceptional circumstances. Prime Minister Stephen Harper stated in response to questions from reporters that, while national security issues were considered in respect of the CNOOC and Petronas transactions, neither transaction raised national security concerns.

However, SOE investors in particular should consider whether a proposed acquisition could conceivably raise any national security issues and, if so, whether they could be addressed by undertakings. For example, we are aware of a proposed acquisition of a Canadian software company (apparently well below the ICA net benefit review threshold) by a foreign investor with links to Chinese SOEs that was abandoned earlier this year because of a letter received from the Investment Review Division of Industry Canada relating to national security considerations.


Key implications of these developments include:

  • The current government is clearly reluctant to change its policies on ICA review in the midst of an ICA review of a particular transaction. The government recognizes the importance to investors of providing some degree of predictability.
  • The government has imposed a strict limit on any future attempts by foreign SOEs to acquire controlling interests in the Canadian oil sands, while also signalling that the same principle could be applied to limit aggregate SOE investment in other sectors. In particular, the Minister may find that a proposed SOE investment is not likely to be of net benefit to Canada if it would result in such a degree of aggregate state control that the sector may cease to be driven by a private sector commercial orientation. It remains to be seen what aggregate SOE control thresholds might trigger such a concern.
  • Acquisitions by SOEs of less than a controlling interest in an entity active in the oil sands (or other sectors) will not likely raise the same level of concern, if they even require an ICA review. (One example of such a reviewable investment might be an acquisition of an entity that in turn controls only a minority stake in an oil sands developer.)
  • The proposal to retain the current C$330 million asset value review threshold for SOE investments, even when the general review threshold increases to a $1 billion enterprise value threshold, may result in relatively more SOE investments continuing to be subject to ICA reviews, although in a particular case an entity's asset value may be considerably lower than its enterprise value.
  • The new broader definition of an SOE in the government's guidelines may create significant uncertainty as to when the lower review threshold and the new SOE policy framework will apply.
  • It does not appear that the government will saddle the review of a particular SOE investment with a requirement that the controlling State provide reciprocal investment rights for Canadian firms seeking to invest in that country.
  • Each SOE investment subject to ICA review will be considered on its own merits. ICA reviews of particular proposed SOE transactions may still attract significant media and political attention and controversy. National or regional issues, such as those that appear to have led to the withholding of ICA approval for BHP Billiton's proposed acquisition of Potash Corporation in 2010, can still arise for a given transaction, whether or not an SOE is involved. Accordingly, careful planning with both legal counsel and government relations advisors is required for any ICA review of an SOE transaction.

The official media release of the Government of Canada, with links to the relevant statements and guidelines on the review of foreign SOE transactions under the ICA, is available online at

See here for background on the CNOOC and Petronas transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Mark C. Katz
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions