Canada: Canada Remains Open To Foreign Investment With Some Fine-Tuning Of Policies Related To Investments By State-Owned Enterprises

On December 7, 2012, Industry Canada released widely anticipated revisions to guidelines1 on the review of proposed investments by foreign state-owned enterprises (SOEs) under the Investment Canada Act (ICA). At the same time, the Prime Minister provided additional comments about the government's proposed approach in a companion speech and the Minister of Industry approved two significant SOE acquisitions of Canadian businesses in the oil and gas sector: China National Offshore Oil Company (CNOOC) / Nexen Inc. and Petroliam Nasional Berhad (Petronas) / Progress Energy Ltd.

The Investment Canada Act

Recognizing that increased capital and technology would benefit Canada, the purpose of the ICA is "to encourage investment in Canada by Canadians and non-Canadians that contributes to economic growth and employment opportunities and to provide for the review of significant investments in Canada by non-Canadians in order to ensure such benefit to Canada." The ICA applies when a non-Canadian acquires control of an existing Canadian business or commences a new business activity in Canada. Such transactions must either be notified to Industry Canada2 or, if significant financial thresholds are exceeded, be submitted for "net benefit to Canada" review. While review thresholds vary depending on the country of origin of the investor, the form of investment and the type of business conducted by the target company, the monetary threshold that typically applies is C$330 million in asset value for direct non-cultural investments by investors from WTO countries.

Previous SOE guidelines

In 2007, Industry Canada published guidelines which indicated that an SOE's governance and commercial orientation would be considered in determining whether a proposed investment is of net benefit to Canada. In addition to the general net benefit factors, these SOE guidelines stated that investors would be expected to:

  • adhere to Canadian standards of corporate governance;

  • adhere to Canadian laws and practices; and

  • ensure that the target continued to have the ability to operate on a commercial basis regarding exports, processing, employment of Canadians, development of innovations, and the level of capital expenditures to maintain the Canadian business in a globally competitive position.

The revised SOE guidelines

The 2012 SOE guidelines confirm or refine many of the factors noted in the previous SOE guidelines. The SOE's reporting and governance structure, commitment to transparency and to operating on a commercial basis, and willingness to proactively provide undertakings in respect of such matters will continue to be important. More specifically, the Minister will typically expect undertakings concerning:

  • the appointment of Canadians as independent directors;

  • the employment of Canadians in senior management positions;

  • incorporation of the business in Canada; and/or

  • listing of shares of the acquiring company or the Canadian target on a Canadian exchange.

The most notable change in the revised guidelines is that the definition of an SOE has been expanded to include enterprises that are directly or indirectly "influenced", rather than simply "controlled", by a foreign state. In addition, the nature and extent of the control or influence that a subject SOE is expected to exert over the proposed target and relevant industry post-transaction will be important factors.

National security review timelines

Although no specifics were provided, the Prime Minister expressed an intention to amend the ICA to provide the Minister of Industry with the flexibility to extend the time period for national security reviews in SOE cases under "exceptional circumstances". Under the ICA, the Minister may initiate a review of a transaction upon determining that it may be injurious to national security  (although such reviews have been extremely rare to date). A review on national security grounds may be initiated regardless of a transaction's size, the nationality of the investor or whether the deal involves an acquisition of control or merely of a minority interest. To date, no guidance has been provided as to the types of transactions that may be injurious to national security.

ICA review thresholds

The revised SOE guidelines were accompanied by a statement that the government intends to proceed with previously announced increases of the threshold for review of most acquisitions of control of Canadian businesses. The monetary threshold for direct acquisitions of control by investors from WTO countries will be increased from C$330 million in "asset value" to C$1 billion in "enterprise value" over a four year period. However, in order to facilitate continuing attention to SOE issues, proposed investments by SOEs will continue to be subject to the existing C$330 million review threshold (subject to annual adjustment to reflect changes in Canada's GDP).

The Petronas / Progress Energy and CNOOC / Nexen transactions

The announcement of the revised SOE guidelines coincided with the government's announced approval of two controversial acquisitions by foreign SOEs in the oil and gas sector: the C$5.3 billion acquisition of Progress Energy Corp. by Malaysian state-owned oil company Petronas; and the largest foreign investment by a Chinese SOE to date, the C$15 billion acquisition by CNOOC of Nexen Inc.

The Petronas investment was initially rejected by Industry Canada, subject to an invitation to the investor to resubmit their application. This occurred because the Minister asked Petronas for an extension for the review which Petronas declined. Although the undertakings given by Petronas have not been made public, the resubmitted application reportedly included a proposed new governance structure.3

The review period of the CNOOC transaction was extended twice by Industry Canada, likely due to the size and scope of the transaction, the fact that it involved oil and gas interests and the existence of a parallel review in the United States.4 It appears that CNOOC's undertakings included keeping Nexen's head office in Calgary, seeking a listing on the Toronto Stock Exchange and agreeing to place some C$8 billion of its assets under the control of Nexen's management in Canada.5

Canada effectively "grandfathered" the CNOOC and Petronas deals under the previous SOE guidelines. While the Prime Minister emphasized that Canada "will maintain an open, market-based approach to foreign investment," new SOE acquisitions of controlling interests in Canadian oil sands businesses will be found to be of net benefit "on an exceptional basis only." Acquisitions by private investors will still be possible under the regular net benefit review process and acquisitions of minority interests, including joint ventures, will continue to be welcomed and assessed on a case-by-case basis. The decision not to "change the rules in the middle of the game" by applying new rules to existing applications is another reflection of the government's efforts to create a favourable climate for inbound investment.

Concluding observations

The December 7, 2012 announcements highlight three critical issues relating to Canada's foreign investment policy:

  • Most importantly, the government is maintaining a policy of welcoming foreign investment. The vast majority of investments into Canada occur without any significant government oversight. Since the ICA was enacted in 1985, the Canadian government has approved approximately 18,700 transactions. In 2011, there were 649 direct and indirect acquisitions and investments, with 96.8% of these occurring via notifications and only 3.2% requiring review and approval.6 Very few transactions have been rejected. The approval of the CNOOC / Nexen and Petronas / Progress Energy transactions, despite their difficulty and sensitivity, underscore this reality.
  • Second, investments by SOEs will be subject to enhanced scrutiny. The Prime Minister was clear that the efforts Canada has made to emphasize market principles and replace Canadian state involvement in the economy should not be undermined by investments by foreign SOEs. That said, the revised SOE guidelines are helpful in providing greater transparency and improved guidance on the governance and free market requirements which will need to be met.

  • Finally, foreign investments in the oil sands sector will need to be structured with private capital holding control. However, SOEs will have significant scope to participate through acquisitions of minority interests and joint ventures.

In summary, the publication of revised foreign investment review process guidelines applicable to SOEs which stress the importance of free market principles and industrial efficiency in the "net benefit" analysis should be welcome news to the international investment community. The overall tone of the revised guidelines, coupled with the clearance of the CNOOC / Nexen and Petronas / Progress Energy transactions, are consistent with the government's track record in seeking to liberalize investment and trade including through bilateral investment/agreements as well as the ICA review regime.7 The clear message is that Canada is open for business.


1. See

2.  Investments involving Canadian cultural industries such as music, book and magazine publishing and distribution must be notified to the Department of Heritage, either alone (if the investment is entirely of a cultural nature) or concurrently with an Industry Canada filing (when only part of the investment is cultural).

3.  See for example "Progress Shares Rise on Reports Petronas Has Resubmitted Takeover Bid to Ottawa" The Canadian Press (16 November 2012).

4.  Nexen has offshore interests in the United States which have resulted in the transaction being scrutinized by the U.S. Committee on Foreign Investment.

5.  See Nexen, News Release: CNOOC Limited Enters Into Definitive Agreement to Acquire Nexen Inc.

6.  See "Canada: Investment Regulations", EIU ViewsWire (8 November 2012) at 1.

7.  See for example  Canada continues to welcome foreign investment with Investment Canada Act changes.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2012 McMillan LLP

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.

James B. Musgrove
Martin G. Masse
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.