On May 25th Industry Canada announced it was introducing a new Investment Canada Act (ICA) mediation guideline and would be finalizing Regulations introduced in 2009 to incrementally increase Canada’s ICA review threshold to C $1 billion over four years (see our earlier post).
Industry Canada also issued an annual report discussing the administration of the ICA in 2009 and 2010, recent policy changes and summarizing recent investment activity, the first such report in about twenty years. The following are a few interesting aspects of the Report:
High level trends. The Report states that some of the recent policy changes are intended to address the rise of sovereign investors, need to safeguard Canada’s national security and the market for foreign investment (the “growing global competition for foreign investment”).
Filings. Between April 1, 2009 and March 31, 2010, 437 ICA filings were received (23 applications for review were approved, with a total asset value of $30.8 billion; and 414 notifications were received: 109 for the establishment of new Canadian businesses and 305 relating to acquisitions of control, with a combined asset value of $30.1 billion).
Withdrawn filings. Between June 30, 1985 and March 31, 2010, 172 applications for review and 637 notifications were withdrawn. Two applications (of a total of twelve) were withdrawn following notice to the investors that the Minister was not satisfied that the proposed investments were likely to be of net benefit to Canada. The Report also discusses the blocked Alliant-MacDonald Dettwiler transaction.
Approved applications. In the 2009-10 fiscal year, 23 applications for review were approved, with an average review time of 69 days.
Net benefit to Canada methodology. The Report provides some insight into the Investment Review Division’s methodology for determining whether an investment will be approved (i.e., be found to be of net benefit to Canada, the relevant test), including considering the business’ “likely prospects” of success on a stand-alone basis, what the investor brings to the investment (e.g., capital or expertise not otherwise accessible by the Canadian business being acquired) and potential undertakings. The Report also describes how relevant factors are weighed during a review and states that reviews do not compare competing proposed investments. This discussion is consistent with recent statements by the Government that it would take steps to add increased transparency to Canada’s foreign investment review process. The new report does not, unfortunately, shed much light on the content of the existing net benefit to Canada factors set out in the ICA or how, for example, considerations with no apparent statutory basis (e.g., whether businesses are “strategic assets”, a much used phrase in the BHP/Potash transaction) squares with Investment Canada’s foreign investment review process.
Increased investment activity. In 2009-10, investment activity rose considerably with the total asset value of ICA transactions (applications for review and notifications) almost doubling to $61 billion (increased from $33 billion in 2008-09). The average asset value for reviewable investments increased from $766 million in 2008-09 to $1.34 billion in 2009-10 and the average asset value of notifiable investments increasing from $30 million to $73 million.
Source of investment. U.S. investors represented the largest number of ICA investors over the past five years, followed by EU investors (with U.K. investors representing a large percentage by asset value).
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