Canada starting to be scared foreign investment
2022.12.14 13:42
Canada starting to be scared foreign investment
Budrigannews.com – Dealmakers in the financial sector in Canada are concerned about Ottawa’s plan to examine the national security implications of foreign acquisitions of Canadian companies more closely. They say that such interventions could discourage foreign investments and stymie upcoming deals in crucial sectors.
The Investment Canada Act was given its biggest overhaul in more than a decade last week, allowing the government to block investments that could harm national security and impose interim conditions to prevent buyers from accessing trade secrets.
According to associations representing the industry and lawyers, such conditions may delay and increase the cost of making deals.
Sandy Walker, co-Chair of the Competition and Foreign Investment Review group at law firm Dentons, stated, “There is a concern on how the proposed amendments affect the timing of an acquisition.” In certain occasions, there might be business or monetary goals that require an exchange to rapidly close.”
According to annual reports from the industry ministry, only five of the 87 deals have been completely blocked since Canada added national security review to ICA in 2009. A government source told Reuters that it is used in 15 different industries, including mining, advanced materials, manufacturing, and space technology. However, the list is expected to grow next year.
Canada’s large deposits of crucial minerals, which are necessary for the green transition, are in high demand at the same time as the increased scrutiny.
When asked by reporters on Wednesday whether the new regulations would hinder investment, Industry Minister Francois-Philippe Champagne responded, “The level of investment you’re going to see is going to be unprecedented in the country.”
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Champagne stated that allies “understand we take national security, economic security very seriously, and we’re going to protect our critical minerals because, as you know, these critical minerals will power the economy of the 21st century.” In particular, Champagne referred to critical minerals.
However, according to some M&A lawyers, companies that are registered in Canada but do not have any physical operations there may be subject to the national security reviews.
For instance, in November, Canada required three Chinese investors to sell their stakes in Canadian lithium companies. A portion of these Canadian organizations recorded on the Toronto Stock Trade don’t run lithium mines in Canada, however abroad. Lawyers argue that the move is seen as a foreshadowing of what might fall under the amended ICA.
Huy Do, co-leader of the competition, marketing, and foreign investment group at Fasken, stated, “The jurisdictional threshold for a national security review is fairly low in that it appears to require very little connection to Canada.”
This may motivate some businesses to seek delisting from Canada’s major stock exchanges.
A lawyer from a Toronto-based law firm said, “We are hearing arguments that some companies might want to de-list from the Toronto Stock Exchange and re-domicile in other jurisdictions,” but the lawyer did not want to be quoted because the discussions are still confidential.
The TSX encourages the government to “supplement investment” in critical minerals and “make up for the potential shortfalls generated by these types of policy decisions,” according to a spokesperson, who declined to comment on individual issuer actions.
“We’re also not blind to the geopolitical environment in which we’re living,” said Pierre Gratton, President and CEO of the Mining Association of Canada. While the industry is concerned about missing out on necessary investments to explore for new mines,
According to the industry ministry, the number of applications being evaluated for foreign investments in mining, oil and gas, agriculture, forestry, and fishing decreased by 11% to 37 last year.
Gratton continued, “So as long as what’s being cut off is replaced, we’ll be okay.”
