Chinese investment in Canada’s mining sector has grown over the past few years and is expected to grow into the foreseeable future. The Canadian ambassador to China, Guy Saint-Jacques, has recently stated that the amount of Chinese money flowing into energy development is still three times the size of the amount going into mining. Yet, he revealed that a Chinese-controlled company now has a plan in front of northern regulators to build major open-pit lead, zinc and copper mines along Canada's Arctic coast. He also stated that there is Chinese interest in northern Ontario's Ring of Fire mining region and in Saskatchewan's potash reserves. The policy changes are unlikely to deter that investment in the long run despite the potential increased uncertainty and politicization of the process created by these latest changes to Canada’s investment review regime.
Interestingly, despite the current level of Chinese investment in the mining sector there have been very few ICA reviews of such acquisitions as most have not exceeded the ICA review thresholds. It is not clear whether that is a result of Chinese investors’ preferring smaller deals over larger ones, or a sign that Chinese investors are actually avoiding deals that would trigger an ICA review because of the perceived (if not necessarily real) difficulty of obtaining ICA clearance.
This piece will provide a general overview of the investment review mechanism in Canada including the national security review process and rules specific to SOEs. We will also assess the ramifications of the recent policy changes and subsequent amendments to the ICA with respect to investments by foreign SOEs, and consider the practical implications of those policy changes for Chinese investors.
2012 年12月7日，加拿大政府宣布批準上述兩樁巨額收購。但同日，加拿大總理哈珀在首都渥太華召開的新聞發布會上發表聲明稱，加拿大政府認為，讓海外國有實體 進一步控制加拿大的油砂資源開發，不再符合加拿大的利益。今后，對外國國有企業收購加能源企業的審批將更加嚴格，將作為特殊情況，以特案來進行審理，按其 是否符合加拿大的“凈受益”要求進行更嚴格的審查。
OVERVIEW OF THE INVESTMENT CANADA ACT 《加拿大投資法案》審查
The ICA is Canada's statute of general application governing the acquisition of control of Canadian businesses by non-Canadians. The ICA provides that an acquisition is reviewable if a non-Canadian investor proposes to acquire direct control of an existing Canadian business, where the book value of the assets of the target business exceeds C$344 million (the 2013 threshold).
The ICA includes detailed provisions defining the concept of an acquisition of control. Control is deemed irrebuttably to be acquired where a majority of the target entity's voting securities are acquired or where all or substantially all of the assets used in carrying on the Canadian business are acquired, and deemed rebuttably to be acquired where less than a majority but one third or more of those securities are acquired.
Jurisdiction over investments rests with the Department of Industry and reviews are carried out by the Investment Review Division (the "IRD") within this department. The IRD will carry out the review and then make a recommendation to the Minister of Industry who has the ultimate decision making authority. If an acquisition of a Canadian business by a non-Canadian falls below the relevant thresholds and is not reviewable, it is notifiable and the acquiror must provide a notice to the Minister of Industry at any time prior to the closing of the investment or within 30 days thereafter.
Approval Criteria and Undertakings審批標準和承諾
Before a reviewable investment may be completed, the Minister must approve it. The legal test for approval is whether the Minister is "satisfied that the investment is likely to be of net benefit to Canada". As part of this process the Minister will contact his counterparts in each province in which the Canadian business has significant operations in order to obtain a local assessment of the acquisition’s impact. For example, the Province of Saskatchewan was actively involved in the review of BHP Billiton Ltd.’s ("BHP") proposed acquisition of Potash Corporation of Saskatchewan Inc. ("PotashCorp"). The ICA requires the Minister to take a number of factors into account, where relevant, in making his determination.
The review process often includes negotiating commitments or "undertakings" that are requested by the IRD to satisfy the Minister that the investment will be of net benefit to Canada. These undertakings usually have a duration of three to five years and may include commitments to maintain jobs and facilities in Canada, to retain Canadian management, to make capital expenditures in Canada, to comply with environmental regulations, to conduct research and development in Canada, etc. In certain specific situations, additional undertakings may be required by the IRD where an SOE is the investor, which can be in effect for as long as the SOE owns or controls the Canadian business that it acquired. Such additional undertakings may include, for example, appointing independent Canadian directors or listing shares of the SOE or the Canadian business on a Canadian stock exchange. It can be a highly political process; nevertheless, most acquisitions under the ICA are allowed to proceed with undertakings from the purchaser and, in fact, Canada has only formally blocked two foreign acquisitions since the ICA came into force in 1985.
The review period under the ICA typically ranges from 45 to 75 days. The Minister may only extend the review beyond 75 days with the consent of the investor; however, in practice such extensions are not uncommon for particularly complex or politically sensitive transactions.
Application to the Mining Sector在礦業領域的應用
The mining sector does not generally tend to be considered a "sensitive sector" or a sector that is in need of protection. There are certain obvious sensitivities raised by investments in uranium producing properties, which could raise national security concerns, as will be further discussed below. That said, one of the two foreign acquisitions that Canada has formally blocked was in the mining sector. The political furor that surrounded the PotashCorp takeover, and ultimate rejection, however, may have had more to do with the fact that it was, and is, a "Canadian champion", rather than having to do with the mining sector in particular.
The Non-Resident Ownership Policy in the Uranium Mining Sector鈾礦領域的非居民所有權政策
The Canadian government has a long standing policy on foreign ownership in the uranium industry. The Non-Resident Ownership Policy in the Uranium Mining Sector (the "Policy") requires a minimum level of Canadian ownership in individual uranium-mining properties of 51% at the stage of first production; therefore, a foreign investor cannot acquire more than a 49% interest in a uranium mining property without being granted a special exemption. Uranium exploration properties are not subject to the Policy. Implicit in the Policy is that a foreign-owned uranium exploration company must be in compliance with the Policy prior to bringing a uranium mine in Canada to the stage of first production. The press secretary to Natural Resources Minister Joe Oliver recently confirmed, in reference to Rio Tinto's 2012 acquisition of Hathor Exploration Limited, that the policy did not apply to that acquisition because Hathor does not have any mines in production. So, for example, a wholly foreign-owned exploration company would have to find a Canadian partner before moving to the production stage.
NATIONAL SECURITY REVIEW OF INVESTMENTS 投資的國家安全審查
The ICA also contains a national security review mechanism that allows the Canadian government to review, prohibit, or impose conditions on a broad range of direct and indirect investments by non-Canadians on the basis of national security concerns.
Any investment, regardless of the size of the target or of the investment, can be reviewed to determine if it could be "injurious to national security". Moreover, the Minister of Industry may request information in order to help the determination of whether or not the investment could be injurious to national security.
If, after consultation with the Minister of Public Safety and Emergency Preparedness, the Minister of Industry considers the investment injurious to national security, the Minister of Industry will recommend that an order for review be made by the Governor in Council. Interested parties will then have an opportunity to make representations to the Minister of Industry and he may require additional information from the non-Canadian or other interested parties for the purposes of the review. If the Minister believes that the investment will be injurious to national security, the matter will be referred to the Governor in Council. The Governor in Council may then make any order considered advisable to protect national security. Potential orders include directing the non-Canadian not to implement a proposed investment, authorizing the investment on the basis of certain conditions, and requiring a divestiture of control by the non-Canadian.
In general, the acquisition of Canadian mining interests (other than those involving uranium mining interests) by non-Canadians has not, to our knowledge, raised national security issues. The national security provisions are new (introduced in 2009); however, and the body of precedent is still small. The national security review mechanism is, in many ways, akin to the one employed by the Committee on Foreign Investment in the United States ("CFIUS"). The CFIUS regulations also omit a definition of "national security", but the term is interpreted broadly in the U.S. to cover "critical infrastructure". In theory, mining interests could raise issues where ancillary assets – capable of being considered critical infrastructure – are sold along with the mining business or in situations where the mining assets are located in close proximity to critical infrastructure. Therefore, without an indication to the contrary in Canadian case law, it is theoretically possible that Canada could move to a broad interpretation of national security as is done in the United States.
The Minister of Industry has 45 days after receiving and certifying notice of the investment, in the case of a non-reviewable investment (including minority investments), to initiate a national security review. The Canadian government can initiate a review during that period, even if the transaction has already closed, with the risk that the investment may be unwound or restricted. Once the review timelines have expired, the government cannot challenge a foreign investment on national security grounds.
Once initiated, the maximum period for a national security review is approximately 130 days, but it may be extended even further with the consent of the investor. Requests for extensions are not uncommon for particularly complex or politically sensitive transactions. The proposed amendments to the ICA will further extend a number of the national security review timelines and will allow various timelines to be extended on agreement between the Minister and the investor.
Application to the Mining Sector在礦業領域的應用
Some commentators believe that the new national security review regime has had a "chilling" effect on foreign investment in Canadian companies involved in uranium. That said, investments in the mining sector, apart from those in uranium, will not generally trigger national security reviews. Nevertheless, the number of notifications received by Industry Canada involving uranium appear to have fallen since 2009 when the national security provisions were introduced. Significantly, two investments involving uranium exploration companies have been made since 2009. One of these involved a Chinese investor, though it should be noted that this does not appear to have involved an SOE investor and also seems to have involved the establishment of a new Canadian business, rather than the acquisition of an existing Canadian business.
Furthermore, it is believed that an intervention by the Minister of Industry under the national security review provisions was behind the termination, in 2011, of the proposed acquisition of Forsys Metals Corp. ("Forsys"), a Canadian company involved in uranium, by George Forrest International Afrique S.P.R.L. In that case, Forsys was a company incorporated and listed in Canada; however, its projects were located in Namibia and did not appear to have any mineral properties or projects in Canada. This example serves to illustrate the potentially very broad scope of the ICA national security review process. That said, although the assets of the target were in the uranium mining sector, Industry Canada's concern may have centered on the buyer and its sources of funding, which were speculated to be based in Iran, rather than merely on the nature of the assets involved.
Due to the nature of uranium, there is a reasonable risk that the national security provisions may be invoked in respect of a foreign acquisition of a Canadian company involved with uranium, particularly if an SOE is involved in the acquisition. Since enriched uranium can be used to manufacture nuclear weapons, it is more likely that government authorities will scrutinize closely the identity and affiliations of foreign acquirers of uranium undertakings in Canada.
STATE-OWNED ENTERPRISES 國有企業
Revised SOE Guidelines and Proposed Amendments to the ICA經修改的國有企業投資指南和《加拿大投資法案》修正案議案
“從 技術層面上來看 ，《加拿大投資法案》的修正案和新政策將適用于外國對加拿大所有產業和經濟部門的投資。新政策修訂的時間、內容和焦點是政府針對戰略性的國家資源受到威脅 時的回應。尤其明確提及了油砂對未來加拿大的經濟繁榮的巨大價值，外國國有企業收購加拿大油砂企業僅會在特殊情況下得到批準。從另一個視角看，油砂領域外 的交易被否決的可能性并不大。”
Immediately following the government’s approval of two major SOE acquisitions in the oil and gas sector,the Canadian government announced changes to how the government will review investments by foreign SOEs going forward and released a Statement Regarding Investment by Foreign State-Owned Enterprises (the "Statement") and revised Guidelines for Investment by State-Owned Enterprises (the "Guidelines"). The recent changes confirm that the government intends to treat investments by foreign SOEs differently, and that SOE investors will attract additional scrutiny under the ICA.
The Statement provides that the Minister of Industry will closely examine the degree of control or influence an SOE would likely exert on the Canadian business that is being acquired; the degree of control or influence an SOE would likely exert on the industry in which the Canadian business operates; and, the extent to which a foreign state is likely to exercise control or influence over the SOE acquiring the Canadian business. The Guidelines are similarly intended to address the government's main concerns about SOE investment in Canada; being that they should operate according to sound principles of corporate governance and commercial orientation. In addition to the net benefit approval criteria set out above, additional factors that the Minister of Industry is to consider in his review of whether an investment by a non-Canadian SOE would be of "net benefit to Canada" include the governance and commercial orientation of the SOE (e.g., the SOE’s corporate governance, reporting structure, and compliance with Canadian laws and practices), and the extent to which the non-Canadian is owned or controlled by a state or its conduct and operations are influenced by a state. The Minister will also assess whether the Canadian business to be acquired by an SOE will have the ability to operate on a commercial basis with regard to a non-exhaustive list of factors.Finally, the Minister will consider requesting undertakings such as appointing independent Canadian directors, employing Canadians in senior management and listing shares of the SOE or the Canadian business on a Canadian stock exchange. It is not unusual for the Minister to seek these types of undertakings even when SOEs are not involved.
Following up on the December announcements, the government has since introduced amendments to the ICA in Bill C-60 Economic Action Plan 2013 Act, No. 1,which received royal assent on June 26, 2013 and will implement the new policy on investments by foreign SOEs. As expected, Bill C-60 introduces a definition of "state-owned enterprise" in the ICA. The new definition is broad and includes entities that are controlled or influenced, directly or indirectly, by a government of a foreign state, whether federal, state or local, or an agency of such a government. Unfortunately for investors, the government has not provided any guidance as to the meaning or concept of "direct or indirect influence".
The amendments also confirm that there will be a separate net benefit review threshold for SOE investors. The existing C$344 million (for 2013) threshold, based on "net book value", will continue to apply to SOE investments. In contrast, investments by non-SOE investors will be subject to a net benefit review only if they exceed C$600 million based on "enterprise value", increasing to C$1 billion over the next four years. Acquisitions by SOEs that are below the new SOE review threshold are not reviewed under the SOE guidelines, but may still be subject to review under the national security review provisions of the ICA.
Significantly, the amendments also introduce new deeming powers for the Minister of Industry. The Minister will be given the ability to impose net benefit reviews on acquisitions of control of Canadian businesses by entities that would otherwise qualify as "Canadian" under the ICA; and, direct acquisitions of certain minority interests in Canadian businesses that would not previously have been subject to a net benefit review under the ICA.
Technically, the amendments to the ICA and revised policy will apply to foreign investment in all industries and economic sectors. That said, the timing, context and focus of the revised policy all suggest that the government was acting in response to a perceived threat to a strategic national resource. Specifically, the Statement makes explicit reference to the immense value of the oil sands to the future economic prosperity of all Canadians and states that acquisitions of control of Canadian oil sands businesses by SOEs will only be approved in exceptional cases. As such, it is not expected that the revised rules will result in a significant increase in the number of blocked deals outside of the oil sands sector.
Implications for Chinese SOEs Investing in the Canadian Mining Sector對中國國有企業在加拿大礦業領域投資的啟示
Despite the uncertainty currently surrounding Canada’s foreign investment review regime, many observers believe that Canada continues to be "open for business" especially given the capital-intensive nature of Canada’s resource industries. The mining sector is not identified in the ICA, the Statement or the SOE Guidelines as a sector that merits special attention; therefore, in most cases, the acquisition of mining interests (excluding uranium mining interests) by SOEs is not likely to raise issues under the ICA. However, given the increasing politicization of the ICA review process, it will be important for foreign investors and their advisors to carefully manage the ICA process particularly if the proposed acquisition is of a Canadian champion in the mining sector.
What is clear from the revised policy is that investors need to be much more sensitive in their approach to getting regulatory approval. The process is now highly politicized and it is crucial for investors to identify the relevant stakeholders prior to announcing the transaction. Prudent investors will want to make sure that their transaction is well understood by all potential stakeholders in government, both provincial and federal, and will engage appropriate government relations assistance early in the process. This is particularly significant in the context of SOE transactions. The federal government has made it clear that managing stakeholders at the provincial level is the responsibility of the investor; the BHP/PotashCorp transaction serves as a cautionary tale, if the investor does not address and properly manage these stakeholders in a timely manner, it can potentially derail a proposed transaction, right from the beginning.
Prudent investors will also want to invest considerable time and thought into preparing a package of undertakings that will address the substantive components of the "net benefit" to Canada. This should be done well in advance of the announcement of the transaction so that the package can be used to convince opinion shapers that the transaction is in the interests of Canadians. The framing and communication of undertakings is now critical. Further to this point, foreign investors should also be willing to send senior management to Canada to meet, face to face, with government stakeholders. This is all part of packaging the proposed investment and selling the media, government and general public as to why the transaction would be of net benefit to Canada.
Finally, foreign investors, and SOE investors in particular, need to be willing to comprehensively respond to information requests from the government, including details on ownership structure. It is clear that SOE investments will be subject to a higher degree of scrutiny, which will likely manifest in more information requests, meetings, and longer review periods. Investors should ensure that their purchase agreements provide for outside dates that adequately reflect the potentially lengthy amount of time the government will require to complete its review of a transaction. As mentioned above, investors have little leverage to refuse an extension if the government requests one. If the Minister requires more time, and the investor is not willing to consent to an extension, the Minister has no choice but to expressly reject the transaction.
盡 管外國國有企業投資加拿大的規則發生變化，但加拿大專業律師認為，相關風險是可控的。雖然加拿大政府審查海外投資項目擁有更多的自由裁量權，但并不是說加 拿大政府有意經常行使其新的自由裁量權；而針對非國有企業的外國投資者而言，形勢并未發生重大變化?？偟膩碚f，加拿大仍然歡迎外國投資。
About the authors作者簡介
加拿大Bennett Jones 律師事務所律師。專注于全方位的競爭法和外國投資審查事項。被錢伯斯全球稱贊為“世界領先的商業律師，他耐心、注重細節且反饋迅速”。經常代表境內外客戶就公司合并、合資企業和其他形式的戰略聯盟涉及《競爭法案》、《加拿大投資法案》的申報和許可規定提供法律服務。
加拿大Bennett Jones 律師事務所律師。業務領域包括全方位的競爭法和外國投資審查事項。
Bennett Jones 律師事務所是加拿大一流的商業律師事務所，擁有375名律師，設有9家辦公室——分別位于卡爾加里、多倫多、埃德蒙頓、渥太華、阿布扎比、迪拜、多哈、北京和華盛頓。在復雜的跨境和國際交易方面擁有極其豐富的經驗。
If the Canadian business is a cultural business, the threshold is C$5 million. Moreover, if the transaction involves the indirect acquisition of control of a Canadian business (excluding “cultural businesses” where the threshold for review of indirect acquisitions of control is C$50 million) by a WTO investor, as an incidental result of a transaction involving the acquisition of control of a larger foreign parent incorporated elsewhere than in Canada that controls an entity in Canada carrying on a Canadian business, the transaction is not reviewable and is only subject to a notification obligation. The factors are as follows:
the effect of the investment on the level and nature of economic activity in Canada, including, without limiting the generality of the foregoing, the effect on employment, on resource processing, on the utilization of parts, components and services produced in Canada and on exports from Canada;
the degree and significance of (continued) participation by Canadians in the Canadian business (in particular at the director and officer levels) and in any industry or industries in Canada of which the Canadian business forms a part;
the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
the effect of the investment on competition within any industry or industries in Canada;
the compatibility of the investment with national industrial, economic and cultural policies, taking into consideration industrial, economic and cultural policy objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and
the contribution of the investment to Canada’s ability to compete in world markets.
This policy is set out in a 1987 letter from the Minister of Natural Resources to companies active in Canada's uranium industry.
The Policy is administered by the Uranium and Radioactive Waste Division of the Department of Natural Resources Canada.
Research reveals that one uranium mine operating in Canada (and three mining sites under development) are majority owned by foreign enterprises – mainly French and Japanese. Exemptions to the general rules governing uranium extraction are based on the determination of disproportionate benefits and low risk from these investments.
The two decisions were China National Offshore Oil Corporation’s ("CNOOC") acquisition of Nexen Inc. and Malaysia’s Petroliam Nasional Berhad’s ("PETRONAS") acquisition of Progress Energy Resources Corp.
Such factors include: where to export; where to process; 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 on-going innovation, research and development; and, the appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.
Bill C-60, An Act to Implement Certain Provisions of the Budget Tabled in Parliament on March 21, 2013 and Other Measures. 41st Parliament, 1st Session.
Further annual adjustments will be made to reflect the change in nominal gross domestic product in the previous year.