Canada constrains foreign SOE investment

The Canadian government published a new policy on October 28, 2022, regarding the application of the Investment Canada Act (the ICA) to foreign state-owned enterprises’ (SOEs’) investments in Canada’s essential minerals industries and critical minerals supply chains. Private investors with close ties to foreign governments are also included in the programme.

According to the guideline, review requests for SOE control acquisitions of Canadian companies involving key minerals will only be granted in rare circumstances. The policy further stipulates that any SOE involvement in an investment involving a Canadian company operating in a crucial minerals industry or supply chain will immediately be subject to a national security review.

The strategy is intended to safeguard the crucial mining industries from foreign SOEs, according to a joint statement from the Minister of Natural Resources and the Minister of Innovation, Science and Industry (the ISED Minister).

The policy has already been put into practice, as evidenced by orders ordering foreign investors to sell their holdings in Canadian critical minerals companies, according to a later announcement.

In general, depending on the form of the transaction, the amount, and the nature of the Canadian business being purchased, any acquisition of control of a Canadian business by a non-Canadian is either reportable or reviewable under the ICA.

With a few exceptions, a reviewable transaction cannot be completed until the federal government is satisfied that it “is likely to be of net benefit to Canada.” The federal government must receive notification of notified transactions (which are not subject to a net benefit review) before or within 30 days of closing.

The ICA also requires notification when a non-Canadian starts a new business in Canada.

The ICA also stipulates that any investment made in a Canadian company by a non-Canadian, regardless of its structure or value, can be subject to a national security review if the ISED Minister has cause to believe it could endanger national security. This review is separate and apart from the net benefit review or notification processes.

The acquisition of a non-controlling interest in a Canadian company is one example of an investment that can be voluntarily reported to the government even though it is not required to do so under the ICA.