Canada closes the door as Russia keeps playing the field

 
Elizabeth Fournier
CANADIAN politicians were in damage limitation mode yesterday, taking to the country’s airwaves to tell anyone who’d listen that The True North is open for business.

Their protestations come in the wake of industry minister Christian Paradis’ last minute decision on Friday to block Malaysian state oil company Petronas’ bid for Progress Energy, a natural gas producer based in British Columbia (see page 14).

It’s the latest in a series of huge deals that have been scuppered by the Canadian government, from BHP Billiton dropping its $40bn bid for Potash in 2010 to the aborted tie-up between US DIY chain Lowe’s and Canada’s Rona last month – and as the objections stack up so do the hundreds of billions of dollars in inbound investment that Canada’s government is turning away.

Analysts are already predicting “gore on the floor” of the TSX this morning for both Progress and fellow gas company Nexen – currently the target of a $15.1bn takeover bid by Beijing-based CNOOC – with the read-across from the Petronas decision set to have wider implications across the market.

According to data released last week by PwC, deal volumes in the Canadian M&A market fell to their lowest level since 2009 in the three months to 30 September, down 21 per cent from the same period last year. Worryingly, the only thing stopping deal values from plunging by the same amount was the ongoing CNOOC-Nexen deal.

Prime Minister Stephen Harper may have sent his lieutenants out on a charm offensive, but unless they start giving international deals the nod they could risk putting firms off from even trying in the first place.

THE RUSSIAN ALTERNATIVE
One country that investors may be tempted to turn to instead is Canada’s geographical doppelgänger (and ice hockey mega-rival) Russia, which, if a multi-billion deal with BP goes through today as expected, will counter-intuitively have proved itself open for foreign business.

BP’s chief executive Bob Dudley has already been pressing the flesh with Vladimir Putin during negotiations over the tie-up with state-backed oil giant Rosneft, and the Russian leader’s close relationship with Rosneft boss Igor Sechin – a former Soviet spy – is as lucrative to the British firm as the dividends it would reap from the deal.

According to UKTI, trade between the UK and Russia has been growing by an average of 21 per cent year-on-year for the past decade, and totalled £4.78bn last year.

“Do not scratch your head and wait: Russia is open for business and the potential profits are huge,” deputy economic development minister Stanislav Voskresensky told visiting business leaders last September as he launched a Russian Direct Investment Fund to attract investors to the country, and just last month Putin pledged another $2bn to the fund. Stephen Harper, on the other hand, just pledged $500,000 to fund next year’s Ice Hockey World Championship in Ottawa. It’s time he started seeing Russia as a rival on more than the hockey pitch.

Elizabeth Fournier is City A.M.’s news editor
@ej_fournier