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Those who have discussed the issue with him report that Prime Minister Stephen Harper has been worried a state-owned company, likely from China, would take a run at a major Canadian energy producer.
Now that the massive China National Offshore Oil Corp. (CNOOC Ltd.) has bid $15.1-billion for Nexen Inc., it’s easy to understand the Prime Minister’s uneasiness. His initial statements were properly guarded, as befits the complexity of the file and his own apparent hesitations.
It has been said that the CNOOC bid is a standard business transaction: one company taking over another, in this case with the support of the Nexen board. CNOOC trades on stock exchanges. It has made commitments about keeping headquarters in Calgary, maintaining staff and conducting business pretty much as before.
Except that CNOCC is not your ordinary multinational company. It is a state-owned enterprise (SOE) and, as such, benefits from state money, rather than borrowing on open markets. That it offered a 61-per-cent premium for Nexen’s shares is a margin that a non-state-owned company could likely never manage. The proverbial playing field, in other words, is tilted in favour of a company that does not have to borrow at market rates, enjoys preferential tax treatment and can therefore offer such a high premium.
What might come next? With the huge piles of capital in hand, China’s SOEs could swallow other energy-related companies, paying premiums for shares that normal market-oriented companies could not.
Then there is the matter of quid quo pro – that is, if Chinese companies can take over Canadian companies in such an important area as energy, would a Canadian company be allowed to do the same in China? Chances are no, because the Chinese usually welcome foreign investment in major economic sectors only with Chinese partners, often SOEs.
For those with a sense of history, a delicious irony attends the CNOOC bid and the largely enthusiastic reaction it has received from the provincial government and the Alberta oil patch.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/commentary/oil-patch-ironies-aside-many-questions-for-harper/article4443236/