Industry Committee on May 21st, 2013

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

When I was talking earlier I was asking you about the question of investment chill or what the impact has been, and your view was that there hasn't really been any impact. The sense you're getting is that it's not really a problem now.

There was a report today in The Globe and Mail suggesting in fact that mergers and acquisitions are way down, below $1 billion in the first quarter. In fact, there was a report in the National Post on May 9, an op-ed piece by Lawson Hunter and Michael Kilby of Stikeman Elliott saying basically it's not clear whether the government fully appreciates the potential chilling effect of significantly changing the rules twice in a matter of months, especially at a time when resource markets are weak and capital spending is being curtailed. They say that while they believe Canada remains open to investments by SOEs, SOEs appear much less confident.

That raises this question. Is putting more restrictions in place at this time a wise thing to do, and to what degree are we putting a damper on investment in Canada?

[Paul Halucha]

My view is that the act is still overwhelmingly supportive of foreign investment in Canada. I think the record in the administration of the act shows that. The fact is that when the government made these announcements, it indicated very clearly that non-controlling acquisitions and investments by even state-owned enterprises were considered still to be positive.

The restrictions were put in place, to the extent that they are restrictions, because the minister still has an obligation to review, as I've said, any new transactions including those proposed from the oil sands sector.

I would also note that there's been a reduction in the value of resource markets around the world right now, which could also be an indication of why there hasn't been merger and acquisition activity. I think a quarter is a very short period of time to come to a generalization.

[Geoff Regan, Liberal, Halifax West, NS]

It seems to me that during the recession there was a lot of merger and acquisition activity because there were opportunities for companies to get assets at lower values. So if asset values are down, as they seem to be in the last few months, it's surprising to me that.... I think it should be of concern. In fact, you were saying earlier that you've seen no indication that interest is down. It just seems to me that the evidence is to the contrary.

The other question is about how these amendments will impact Canadian sellers. I think I was a bit confused earlier in the question I was asking. Really, the question is this. When we have Canadian investors who are looking at selling, what will this do to our investors in their risk aversion when they're thinking about whether or not a foreign company might be able to buy them?

What kind of analysis has been done? How will these amendments further impact Canadian sellers in terms of their investments and their risk aversion and economic growth? That really is the key. The critical question here is whether Canadians will want to invest in Canadian companies if they feel there's less chance of making money on them.

[Paul Halucha]

I will answer that in two parts.

First, I'd go back to liberalization. The fact is that there will be more private sector companies that would be available for sale or for foreign acquisition without a review process once the liberalization process is completed.

Second, there's not a new restriction in place that says state-owned enterprises can't undertake investments in Canada. The act only applies when it's a controlling share of a Canadian company. That's when it gets triggered. The determination that it's a state-owned enterprise only has effect around the threshold.

The government continues to encourage state-owned enterprises to take non-majority stakes in Canadian companies and invest.

[Geoff Regan, Liberal, Halifax West, NS]

When you have people from Stikeman Elliott's competition and foreign investment group telling us that SOEs appear much less confident, the suggestion is that from what they're hearing, SOEs aren't.... The message that they're receiving is,“Look out. Don't bother investing”. That's the point I—

[Paul Halucha]

As a contrary to that, since the announcement happened in December, we have been very involved with our foreign economic consulates, including those in many of the Asian-Pacific countries in which there are state-owned enterprises. We have seen a steady attention and have continued to work with them to help explain the policy, including in the oil sands.

[Geoff Regan, Liberal, Halifax West, NS]

Let me ask you this.

It was stated in December that these changes even then might bring forward more confusion than clarity. And really, the transparency that is talked about here doesn't mean very much if Canadians don't actually have access to the reasoning behind government decisions, behind rejecting or accepting a merger or an acquisition.

What additional methods of communicating this information to Canadians can be and will be put in place?

[Paul Halucha]

Going back to the budget 2010 changes, the act was changed at that time to provide the minister with more discretion in communicating his decisions under the act. The challenge of the circumstance is that the transactions are reviewed in the context of commercial confidentiality, and so he can make information public up to the point that he risks being injurious to the company, and then he's not permitted to do it.

[The Chair, Conservative, David Sweet]

You've run out of time. We're actually over the meeting time too. Thank you very much.

There was a request for the next meeting to be televised, and there appears to be consent, but I want you to know that it looks nigh to impossible that we will be able to do it. Three of the witnesses are off-site, and to be able to do it is technologically unlikely, but we'll see what we can do.

Thank you very much to the witnesses.

The meeting is adjourned.