Li banking on goodwill
If you are a Hong Kong billionaire with notoriously strong ties to the Beijing government, and are eager to build up your energy holdings in Canada just as the country is planning to toughen up rules governing foreign takeovers of resource companies, it helps to enjoy goodwill in the right places.
And so yesterday, just hours after Li Ka-Shing-controlled Cheung Kong Infrastructure Holdings Ltd. announced the takeover of Calgary-based TransAlta Power LP for $629-million, Jim Prentice, the Minister of Industry, singled out for praise an institute at St. Michael's Hospital in Toronto that was established through a $25-million donation from Mr. Li.
Made in November, 2005, the gift was the largest to date received by St. Michael's and, at the time, was the single-largest donation received by a Canadian hospital.
"Our government is committed to building on our important science and technology strengths by taking advantage of the excellent research capacity of facilities such as the Li Ka-Shing Knowledge Institute," Mr. Prentice, who also happens to be responsible for the new foreign-takeover rules, said in a statement, in which he jointly announced with Jim Flaherty, the Finance Minister, that the institute is one of seven centres of excellence that will receive $105-million in federal government funding.
"Through this funding, and working with our provincial and private partners, the new Centres of Excellence will help Canada achieve world-class success in the strategic areas of scientific opportunity and competitive advantage," Mr. Prentice said.
Maybe it's all just one big happy coincidence that made Mr. Li look like a model foreign investor just when he needed it most, yet others also interested in buying up Canadian resource holdings are sure to glean this: - That it can't hurt to write big charity cheques to forge the right government relationships. - That if they want to make a move, they should hurry up -- the government has just announced the new rules, which will include a national security test aimed at acquisitions by foreign state-controlled companies, won't come into effect until next year. - The most astute should target trusts and partnerships that, like TransAlta Power, put themselves on the block as a consequence of Ottawa's taxation changes last October, since the federal government will be hard-pressed to block takeovers of companies harmed by its own policies.
As for Canadians clamoring for tighter foreign-ownership rules, the lesson is this: Foreign investors are paying up for assets that Canadians aren't valuing as much and even more to maintain a benign image, and sorting out the acceptable from the unacceptable will be a tough job since government control is often not measurable.
Take Mr. Li. The Hong Kong taipan, already a major investor in Canadian energy through his 71% direct and indirect ownership of Husky Energy Inc., would be an obvious target of any new foreign-ownership rules because his Chinese ties consistently raise questions about his independence from China's rulers.
That relationship has helped Husky position itself as one of China's largest oil and gas explorers. Husky itself is tightly controlled in Hong Kong.
Through its generous dividends, Husky transfers hundreds of millions to its parent company every year.
Yet Mr. Li's track record in Canada has been admirable. Husky is one of Canada's foreign-owned success stories. Mr. Li's Hutchison Whampoa Ltd. purchased its first interest for $487-million when it was a struggling business in 1986. Led by John Lau, Husky now has a market value of $34-billion and is heavily involved in community causes. It's a top operator in Canada's East Coast, a large producer of ethanol and a big spender in heavy oil and in the oilsands.
With the TransAlta Power deal, Mr. Li wants to further expand his energy presence in Canada. His group is offering $8.38 for each unit of TransAlta Power, or a 16% premium over the latest closing price. The purchase will give him 49.9% of TransAlta Cogeneration, which in turn owns interests in six major energy-infrastructure projects -- five gas-fired cogeneration facilities in Ontario, Alberta and Saskatchewan and a coal-fired, mine-mouth facility in Alberta. The rest is owned by TransAlta Corp., which will continue to manage the assets.
It would be unfortunate if new foreign-takeover rules kept the next Husky from getting off the ground, not to mention future charitable contributions such Mr. Li's that, as Mr. Prentice himself put it, are helping to increase Canadians' quality of life.
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