FACTBOX-Canada's new foreign investment guidelines

Sat Dec 8, 2012 5:47am IST

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Dec 7 (Reuters) - Canada announced new foreign investment guidelines on Friday to clarify the criteria the government will use in deciding whether to approve foreign takeover proposals, particularly those made by state-owned enterprises, or SOEs.

Prime Minister Stephen Harper unveiled the new policy framework at the same time as the government announced its decision to approve the purchase of two domestic energy producers by state-owned Chinese and Malaysian companies.

Here are some key points of the new foreign investment policy framework:

* The government's reviews of SOE investments will take into account the degree of control or influence a SOE would exert on the Canadian business; the degree of control or influence a SOE would exert on the industry in which the Canadian business operates and the extent to which the foreign government would exercise control or influence over the SOE acquiring the Canadian business.

* The threshold for review of SOE bids will remain at C$330 million ($333.79 million) while the threshold for private transactions will rise to C$1 billion over four years.

* Investments by foreign SOEs to acquire control of a Canadian oil sands businesses will only be approved on an "exceptional basis."

* Outside the oil sands, where due to a high concentration of ownership a small number of SOE takeovers could undermine the private sector orientation of an industry, the government will act to protect Canadian interests.

* Proposed acquisitions of minority stakes in Canadian businesses by foreign SOEs will continue to be welcome, and subject to the same scrutiny as private investments.

* The definition of an SOE will be changed to include not only entities that are owned by foreign governments but entities that are "influenced directly or indirectly" by a foreign government.

*The industry minister will have the power to extend the timeline for national security reviews if needed.

PREVIOUS SOE INVESTMENT GUIDELINES:

*The government issued guidelines in 2007 under the Investment Canada Act for investments by foreign SOEs. They broadly seek to ensure the acquired business operates with a commercial orientation, not in the strategic interest of a foreign government.

* The minister examines the corporate governance and reporting structure of the SOE investor, including whether it complies with Canadian standards of transparency and disclosure, has independent members of the board of directors, independent audit committees and equitable treatment of shareholders.

*The minister studies the extent to which the foreign investor is owned or controlled by a state.

*The minister assesses whether the business to be acquired will continue to have the ability to operate on a commercial basis regarding:

- where to export

- where to process

- participation of Canadians in its operations in Canada and

elsewhere

- support of innovation, research and development

- appropriate level of capital spending to maintain a

globally competitive position

*The investor is encouraged to submit specific undertakings in support of the bid such as appointing Canadians to board of directors, employment of Canadians in senior management positions and the listing of shares on a Canadian stock exchange.

*The previous guidelines do not mention specific industries or assets that are considered more sensitive than others.

($1 = 0.9887 Canadian dollars) (Reporting by Louise Egan; Editing by Bob Burgdorfer)

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