Wednesday, May 23, 2018

WhoooHooo!!! Federal government blocks sale of construction giant Aecon to Chinese interests

Federal government blocks sale of construction giant Aecon to Chinese interests

Innovation Minister Navdeep Bains' office has confirmed reports sale has been scuttled

The Trudeau Liberals were facing warnings to proceed cautiously as it weighed a Chinese state-owned company's bid to take over Aecon construction. (Tobin Grimshaw, AP/Canadian Press)

The federal government has blocked the sale of Canadian construction company Aecon Group Inc. to Chinese interests, the office of Innovation Minister Navdeep Bains has confirmed.
The controversial deal between Aecon and China's CCCC International Holding Ltd., also known as CCCI, would have been worth $1.5 billion.
"As is always the case, we listened to the advice of our national security agencies throughout the multi-step national security review process under the Investment Canada Act," Bains said in a statement.
"Based on their findings, in order to protect national security, we ordered CCCI not to implement the proposed investment."
The statement did not explain what specific threats to Canada's national security surfaced during the review. 
The news was first reported by and BNN Bloomberg.
Before news emerged of the government's decision, shares of Aecon Group rose nine cents to close Wednesday at $17.34 on the Toronto Stock Exchange.
The $1.5-billion takeover of the Canadian construction company by CCCI, a division of a Chinese state-owned company, was put on hold in February so the federal government could conduct a national security review of the deal.
Aecon said at the time it had received notice from Bains' office indicating that the federal cabinet had ordered a continuation of the national security review under section 25.3 of the Investment Canada Act.
That section allows the government to order a review if the minister "considers that the investment could be injurious to national security."
"While we are disappointed with the government's decision, Aecon is and will continue to be a leading player in the Canadian construction and infrastructure market," said John Beck, president and CEO of Aecon.
Beck said that while the sale of Aecon is now dead, his company has "secured numerous large-scale projects" and has "a significant pipeline of opportunities ahead of it."
David Lametti, parliamentary secretary to the minister of innovation, said he believes the deal is now dead. 
"My understanding is it's done," he said.
Conservative MP Tony Clement — a vocal critic of the takeover deal — welcomed the decision, telling reporters he is glad the federal government listened to its national security advisers.
"It begs the question: how many other Chinese or other state-owned enterprises have gone under the radar, under the automatic review limit and have acquired various companies in Canada that could also be considered national security risks?" he said.
Clement said any purchase of a Canadian firm by a state-owned enterprise — whether it's Chinese, Russian, Saudi or from some another country — should be questioned.
"If they are making investments, first of all they are not making investments necessarily based on market decisions because they are directed by a country, directed by a state. They could be making those investments for strategic or political reasons," he said.

Pushing for a review

The Conservatives had been pressing the Trudeau government for a formal national security review of the takeover.
"The Chinese company poised to take over Canadian construction giant Aecon is rampant with corruption and has just been blacklisted by Bangladesh for that very reason," Clement said in the House of Commons in February.
"We know Aecon has been awarded numerous sensitive Canadian government contracts, including working with our military and in the nuclear sector. When Bangladesh is sounding alarm bells, why is Canada staying silent and not calling for a full national-security review of the takeover of Aecon?"
Aecon's Beck said at the time that the company offers construction and refurbishment support to clients in the nuclear industry but is not involved in sensitive military installations, nor does it own any intellectual property or sensitive proprietary technology related to nuclear energy.
The acquisition of Aecon by the Chinese firm had already cleared most of its hurdles, after receiving the approval of Aecon shareholders, court approval and clearance from Canada's competition regulator.
The 140-year-old company has worked on several Canadian landmarks, including the CN Tower, Vancouver's SkyTrain and the Halifax Shipyard.
CCCI is the overseas investment and financing arm of China Communications Construction Company Ltd. (CCCC), one of the world's largest engineering and construction groups. CCCC is 64-per-cent owned by the Chinese government.
The World Bank banned CCCI from bidding on construction projects for eight years until January, 2017 due to a bid-rigging scandal in the Philippines.
The state-owned company also has been linked to the construction of artificial islands in the South China Sea — work which has led to heightened tensions between China and several other Asian countries.

What happens to trade talks?

Stewart Beck, CEO of the Asia Pacific Foundation — an independent not-for-profit think tank on Canada/Asia relations — said the government's decision could complicate future trade talks with China.
"First and foremost you have to respect the security establishments decision," Beck told CBC News. "I guess from my perspective it's going to create some problems down the road in terms of negotiating a free trade agreement with the Chinese."


Chinese takeover of Aecon blocked on national security grounds

China's ambassador to Canada has said Canada is being too 'sensitive' about Chinese capital flows into Canada, and likened the national security review to 'looney' behaviour

Innovation minister Navdeep BainsDavid Kawai / Canadian Press file photo

OTTAWA—The federal government has rejected the $1.5-billion sale of Aecon Group Inc. to a state-backed Chinese buyer, effectively bowing to fierce opposition to the deal as Canada navigates sensitive trade talks with the U.S.
In a brief statement seen by the National Post Wednesday, Minister of Innovation, Science and Economic Development Navdeep Bains said Ottawa would block the deal for security reasons, adding that Canada is “open to international investment that creates jobs and increases prosperity, but not at the expense of national security.”
Aecon did not immediately respond to a request for comment.
The decision comes after months of intense opposition to the transaction by Members of Parliament, business groups and domestic construction companies, who argued the deal could give China access to sensitive Canadian IP, and would make local firms less competitive in future project bids. Aecon has contracts to carry out refurbishment and maintenance work on various nuclear facilities, as well as build and maintain several telecommunications lines.
The financial holding division of China Communications Construction Co., Ltd. (CCCC) proposed to buy the Canadian construction firm last year. The Chinese state-owned enterprise is 64 per cent owned by the Chinese government.
China observers have said that state-owned enterprises effectively operate as an arm of the Chinese government, exposing Canada to potential risks if given access to sensitive assets.
“SOEs form an integral part of China’s national strategy for global expansion,” Duanjie Chen, a senior fellow at the Macdonald-Laurier Institute, said at a recent event in Ottawa. “That is a major reason why China has created monstrous SOEs through internal mergers in the first place.”
In February, Ottawa launched a full-scale national security review of the transaction. Such probes investigate foreign-led transactions based on whether it will impact Canada’s defence capabilities or create the potential for proprietary technologies to be transferred outside of Canada.
Aecon, for its part, has maintained that its contracts only involve low-level maintenance and construction work, and don’t involve access to classified IP. It has also rejected claims that Chinese state-backed firms would make local companies uncompetitive, arguing that U.S., South Korean and European conglomerates already have a heavy footprint in the Canadian construction space.
Ottawa’s rejection comes as Prime Minister Justin Trudeau looks to forge trade ties with China, and as Canada continues to navigate sensitive talks with the U.S. around the North American Free Trade Agreement.
U.S. officials have been critical of Trudeau’s approval of Chinese state-backed purchases of Canadian technology companies in the past, including the 2017 purchase of Norsat International Inc. by Chinese firm Hytera Communications Corp., Ltd., a privately held company 52-per cent-owned owned by Chinese billionaire Chen Qingzhou.

Chinese ambassador to Canada Lu Shaye has said that China would accept a rejection of the Aecon deal, but would expect from Canada a detailed rationale for the decision. Justin Tang/The Canadian Press/File

Norsat had contracts with U.S. Department of Defence, the U.S. Marine Corps, the U.S. Army, aircraft manufacturer Boeing, NATO, Ireland’s Department of Defence, and others. Trudeau also approved the takeover of Montreal-based ITF Technologies, a fibre-laser technology company, by Hong Kong based O-Net Communications in March 2017, reversing a decision by the former prime minister to block the deal.
U.S. officials were less critical of the Aecon acquisition by CCCC, but had suggested a full-scale review was necessary. Aecon has several contracts to install and maintain various telecommunications lines with Bell Canada, some of which traverse the Canada-U.S. border.
“We do have shared infrastructure that needs to be looked at,” said Micheal Wessel, the commissioner of the U.S.-China Economic and Security Review Commission who said he was not speaking on behalf of the government body.
Chinese ambassador to Canada Lu Shaye had said Canada is being too “sensitive” about Chinese capital flows into Canada, and likened the national security review to “looney” behaviour by Canadian officials.
Lu has said in past media interviews that China would accept a rejection of the deal, but said it would expect from Canada a detailed rationale for the decision. The country has long argued that China unfairly faces a deeper level of scrutiny in foreign takeovers than its peers.
“We just hope the Canadian side could adopt the same standard for Chinese companies compared with other foreign companies,” Lu said.
Trudeau failed to kick off official trade talks with China during a recent trip to Beijing, after trying to include various social, environmental and gender-based stipulations into the talks. China rejected those clauses outright and suggested Canada stick with economic and trade-based discussions.
Shares of Aecon, which helped build Toronto’s iconic CN Tower, declined in recent weeks to the lowest since the deal was announced in October on concern that it would be blocked. Aecon’s construction work includes several sectors that could impact national security, including building out the nation’s telecommunications networks.
Aecon closed at $17.34 in Toronto trading Wednesday, 14 per cent below the $20.27 a share offer from CCCC International Holding Ltd. to acquire the construction firm. Before the recent declines, there was widespread speculation in Canada that the deal might be approved as Trudeau sought warmer ties with China.

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