Canada PM casts doubt on Nexen takeover by China

Canada’s authorities said Friday the federal government’s review of China National Offshore Oil Corp.’s $15.1 billion proposed takeover of Nexen Inc. (NYSE, TSX:NXY) under the Investment Canada Act will take another 30 days.

Speaking to reporters in Dakar, Senegal, Canadian Prime Minister Stephen Harper gave investors more reasons to speculate about the final outcome of the deal, as he said that China’s “very different” political and economic systems are a concern for his government.

Those remarks, reports Reuters, are among the most revealing Harper has made in connection with the CNOOC-Nexen deal.

“The relationship with China is important. At the same time it’s complex. It’s complex because the Chinese obviously have very different systems than we do, economic and political systems, and that’s why obviously some of these particular transactions raise concerns,” Harper was quoted as saying by Reuters.

He added his government would ensure that Canada has not only a growing relationship with China, but also one that is in the country’s best interests.

Canadian leaders have now another month to review whether the possible takeover represents a so-called net benefit to the economy, as required under the country’s foreign-investment laws.

Since CNOOC made an official application to the Canadian government in late August, mixed messages about the authorities’ position on the subject have generated increasing anxiety among investors. Some fear public opposition will convince the government to eventually block the deal.

Senior Conservative officials, led by Harper, have suggested the issue of market reciprocity — or guarantees that Canadian investors will get access to Chinese assets — could play a key role in the ruling.

Truth is the country’s ruling Conservative Party is split over the matter and Harper has been left with difficult final call to make, as  a previous analysis by Reuters explains:

A green light, still viewed by many as likely, would allow China’s biggest ever foreign takeover, extend China’s foothold in Canada’s crude-rich oilsands – an area with the biggest proven resources of energy outside Venezuela and Saudi Arabia — and help Beijing fulfill its drive for better access to energy resources to fuel the world’s second-largest economy.

A “no”, or conditions on the deal that were too onerous for CNOOC, would cut the takeover premium on Canadian resource stocks, and likely stem Chinese investment in the energy patch, as well as damaging Canada’s already dented reputation as a friendly jurisdiction for foreign investment.

It would also infuriate Beijing, which might make the Chinese market a less welcoming destination for Canadian exporters. When U.S. opposition thwarted CNOOC’s attempt to buy California-based Unocal Corp. in 2005 it angered Chinese officials and strained Sino-U.S. relations.

But Canada’s has to also consider the consequences of upsetting its Southern neighbour, whose pressure could come into play at the time of the final decision.

A U.S. prove of disapproval came a week ago, when Nebraska Republican Congressman Lee Terry urged President Obama in a blog to “Oppose CNOOC-Nexen merger, approve Keystone”:

Recently, Chinese state oil company, CNOOC, announced its intention to purchase Canadian oil company, Nexen, for $15.1 billion in cash. I have deep concerns about this merger and what it means for American national security and energy security in the future.

…With the purchase of Nexen, China will control a major North American oil company. China will firmly be positioned in our front and backyard.

Should the biggest ever foreign investment in the North American country get the green light, CNOOC has promised it will make Calgary the headquarters of its North and Central American operations, will join Canada’s main equities market, the Toronto Stock Exchange and will keep current Nexen employees.

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