OTTAWA Canada is likely to extend its review of the $15.1 billion bid by China's CNOOC Ltd (0883.HK) for oil producer Nexen Inc NXY.TO beyond next week's deadline to allow more time for the government to formulate a broad framework on foreign investment, two sources close to the matter said on Wednesday.
The sources said there was too little time before the November 10 deadline for the federal government to conclude deliberations on the Nexen deal as well as prepare a framework to clarify its overall policy on foreign deals.
Ottawa has promised to announce such a framework at the time it makes its ruling on the Nexen proposal. As a consequence, the sources said, the government would likely seek to extend the review period for a second time.
Under Canadian law, all major foreign takeover proposals are subject approval of the federal government, which must certify that the deals benefit the country.
The sources, who spoke on the condition of anonymity due to the sensitivity of the issue, stressed that the delay was not a signal that the bid was necessarily in trouble.
That said, any delay would increase the carrying cost of those who are holding Nexen shares in the hope of approval.
The timing is complicated by Prime Minister Stephen Harper's plans to travel to Asia from November 3. Harper, who has been closely involved in the discussions on the framework, is not scheduled to be back in Ottawa until November 11, after the current Nexen deadline.
The government has extended the standard 45-day review period by 30 days. That extension expires on November 10, but because that date falls on a Saturday, when government offices are closed, the effective deadline is November 9.
With the permission of state-owned CNOOC, the government could extend its review for another 30 days, or a shorter period. CNOOC is widely expected to agree to any such request.
The Canadian government has said foreign investment is needed to develop the country's vast energy resources but it has been grappling with whether to limit any country's share. It also needs to decide on how deal with state-owned enterprises that may not play by free-market rules.
Polls show Canadians are opposed to the government approving the CNOOC bid, and Harper has said Ottawa would take public opinion into account.
Harper told reporters last week that the government would announce its broad framework "fairly shortly" and "in due course. He said the government would give greater clarity on the policy framework "when we take a couple of decisions that are before us at the present time".
In addition to the CNOOC bid, Harper was referring to a pending $5.17 billion offer by Malaysia's Petronas PETR.UL to buy Canada's Progress Energy Resources Corp (PRQ.TO).
In the case of Petronas, Industry Minister Christian Paradis initially issued a two-week extension. Later, on October 19, he declared the transaction would not benefit Canada, but rather than ruling it out, he offered Petronas 30 days to make new representations to the government.
The Petronas decision was widely seen as a question of timing rather than a sign of hostility to foreign investment. Nor was it seen as precursor to the upcoming CNOOC decision.
In New York, Nexen shares closed at $23.90, up 2.1 percent from Friday's close and below CNOOC's $27.50 offer. In Toronto, the shares ended 2.7 percent below Tuesday's close at C$23.85.
(Reporting by Randall Palmer; Editing by Janet Guttsman, Frank McGurty and Andrew Hay)