UPDATE 2-On CNOOC-Nexen deal, Canada minister points to investment pact

Fri Nov 30, 2012 2:44pm EST

* Kenney says investment pact speaks to reciprocity

* Share price up strongly after depressed week

* Notes rigorous analysis planned for state firms

* Says Canadian values neglected in dealing with China

By Randall Palmer

OTTAWA, Nov 30 (Reuters) - A Canadian cabinet figure known to have reservations about CNOOC Ltd's bid to buy Nexen Inc said Friday that at least some of Canada's concerns about getting reciprocal treatment from China had been addressed by an investment pact.

In his remarks, Immigration Minister Jason Kenney also underscored Prime Minister Stephen Harper's concerns about takeover bids by foreign state-owned enterprises. He said Harper had stressed the importance of preserving Canadian values, such as human rights, in dealing with China.

The remarks highlighted the depth of a government debate over whether to approve state-owned CNOOC's plan to buy the energy producer.

Shares of Nexen, which had advanced before Kenney spoke, erased some gains afterwards, only to surge again by midday, presumably as the market looked more towards the positive nuances in his remarks, rather than the negative.

Investors have been trying to gauge whether the Conservative government's desire for foreign investment and good ties with China will outweigh an intrinsic distrust of the Communist government.

One of the concerns with China's $15.1-billion bid is the possibility that Beijing will scoop up large chunks of Canada's natural resource sector and may not operate purely from commercial motives.

Harper has stressed repeatedly to Chinese officials that the economic relationship must be a two-way street. Kenney suggested the recent investment agreement had addressed that issue, at least in part.

"One of the key reasons why we finalized the Foreign Investment Protection and Promotion Agreement (FIPPA) after 18 years of negotiations is to provide for a degree of reciprocal protection for investment on both sides," said Kenney, whose reservations about the deal stem, in part, from his concern over human rights.

In the past, he said, Chinese investors would benefit from Canada's legal protection, but Canadians did not enjoy the same protection in China.

"So as far as I'm concerned, the FIPPA gives us a great deal of reciprocity," he said, speaking after an announcement on refugee policy. "Now, Canadians will have some enforceable legal remedies to protect their investments in China. So that speaks to reciprocity."

That said, Kenney highlighted the issue of foreign government-owned companies getting particularly close scrutiny.

"The prime minister...has underscored our government's particular concern about large-scale, proposed acquisitions by state-owned enterprises and the need for a rigorous analysis to be undertaken for such applications," Kenney said when asked about his views on CNOOC.

The government has a Dec. 10 deadline for deciding whether to approve the deal, though it can extend that with the agreement of both sides.

Ottawa says that at the same time, it will unveil updated guidelines for foreign investment. This could happen at any time, although it isn't expected to be announced before next week.

Finance Minister Flaherty caused a bit of uncertainty when he told reporters on Friday that there was no deadline of which he was aware.

When reporters asked if a consensus had formed among cabinet members on how to treat companies owned by the Chinese government, Kenney declined to speak about any deliberations, but said:

"Our prime minister has consistently articulated a balanced approach to our relationship with China that emphasizes, yes, our commercial interests, but also our values, in a way that the previous policy was unbalanced, having largely neglected the values dimension of the relationship."

Nexen shares had been under pressure this week because of a possible delay in the U.S. regulatory approval process, but the Canadian government signaled late on Thursday that the U.S. deliberations would not affect Canada's review.

As of 1:50 p.m. EST (1850 GMT), Nexen was up 3.9 percent at $24.36 in New York. CNOOC has offered $27.50 a share.

When Ottawa decides on CNOOC and its broader foreign investment policy, it is also expected to decide on a C$5.2 billion ($5.3 billion) bid by Malaysia's Petronas for Progress Resources Energy Corp. Progress's shares were up 2.6 percent at C$20.04 in Toronto. The Petronas offer price for Progress is C$22.

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