STATE-OWNED ENTERPRISES GUIDELINES
Overview
In December, 2007, the Minister of Industry issued new guidelines under the Investment Canada Act (the “SOE Guidelines”) that apply to the acquisition of Canadian businesses by foreign state-owned enterprises (“SOEs”) (See: Guidelines – Investment by state-owned enterprises – Net benefit assessment). The SOE Guidelines provide guidance in relation to Investment Canada’s process for the review of investments where the investors are SOEs.
In particular, the SOE Guidelines provide that the federal Minister of Industry is to review, as part of the review process under the Investment Canada Act, the corporate governance and reporting mechanisms of SOEs.
“State Owned Enterprise”
Investment Canada defines an SOE as “an enterprise that is owned or controlled directly or indirectly by a foreign government” and states that it is the Government’s policy to consider the governance and commercial orientation of SOEs as part of its “net benefit to Canada” analysis. As such, the governance structure and commercial nature of an SOE investor are the principal criteria for assessing whether an investment by an SOE investor is likely to be of “net benefit” to Canada.
Relevant Factors
In addition to the ordinary net benefit factors set out in the Investment Canada Act, the SOE Guidelines provide that the Minister will also consider factors relating to the corporate governance and reporting structure of the SOE investor.
With respect to corporate governance, relevant factors include whether a SOE adheres to Canadian standards of corporate governance (e.g., commitments to transparency and disclosure, independent audit committees and independent board members) and to Canadian laws and practices.
With respect to the commercial orientation of a SOE, the Minister will assess whether a Canadian business to be acquired by an SOE will continue to operate on a commercial basis regarding, among other things, where to process, where to export, participation of Canadians in Canadian and non-Canadian operations and capital expenditures to maintain the global competitiveness of the Canadian business.
In essence, the SOE Guidelines provide that an SOE investor may receive more intensive scrutiny in relation to its corporate governance structure and commercial orientation that non-SEO investors.
Having said that, there have been some recent investments that might have been thought to have generated concerns, including PetroChina’s investment in Alberta oil sands projects in 2009, which proceeded based on undertakings that included commitments for Canadian participation in management, Canadian employment and capital expenditures in Canada (all of which being consistent with undertakings typically sought in relation to investments generally under the Act).
Illustrative Undertakings
Investment Canada also provides examples in its SOE Guidelines of undertakings that could be provided to ensure that investments in Canada by SOEs are of net benefit to Canada. These include: (i) the appointment of Canadians as independent directors, (ii) appointing Canadians to senior management positions, (iii) incorporating the business in Canada and (iv) listing the SOE acquirer’s shares (or those of the Canadian business being acquired) on Canadian securities exchanges.
In addition, the Guidelines encourage SOE investors to file draft undertakings with Investment Canada together with their submissions for proposed acquisitions.
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