Ottawa rejects takeover of company with Site C contract

Contract rejected

"The Aecon decision suggests that any major takeover of a major Canadian critical infrastructure company would be looked at very closely on national security grounds", said Wesley Wark, director of the Security and Policy Institute at the University of Ottawa.

The completion date of Aecon's deal with CCCC International Holding Ltd, the overseas investment and financing arm of China Communications, had been pushed back in February as Canada extended a national security review, underscoring rising wariness of Chinese firms buying up assets in Western countries. Under the Investment Canada Act, a national security review is conducted with input from Canada's security and intelligence agencies and the Department of Public Safety. "Based on their findings, in order to [protect] national security, we ordered [the Chinese firm] not to implement the proposed investment". (TSX:ARE), citing national security concerns.

New Democrat MP Brain Masse said while he agrees with the government's rejection of the bid, Ottawa took too long to come to a decision.

In an unusual move, the Trudeau cabinet has rejected the sale of Canada's third largest construction company to a notorious Chinese state-owned enterprise for "national security" reasons. The federal government has the ability under the Investment Canada Act to prevent the transaction if it reasonably believes that the transaction presents national security concerns.

"These is no doubt that the decision made by the Canadian government is by no means a good news for the investment co-operation between China and Canada", said a statement released by the Chinese embassy in Ottawa. "Premier Horgan now has more freedom of action to increase regulatory measures for Site C to ensure worker safety and restrict the inevitable, and to me, unacceptable, environmental damage", she said.

CCCI's Beijing-based parent, CCCC, is one of the biggest engineering and construction companies in the world and is the largest contractor building China's Belt and Road Initiative across Asia through to Africa. The Chinese state-owned enterprise is 64 per cent owned by the Chinese government.

"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".

The Conservatives had been pressing the Trudeau government for a formal national security review of the takeover.

Earlier this year, the Aecon-Flatiron-Dragados-EBC Partnership was announced by BC Hydro as having been awarded the contract to build the Site C dam's generating station and spillways. The overall outlook is positive with areas of strength in Aecon's business in infrastructure, nuclear, telecom, gas and power distribution, expected to outweigh the impact of fewer opportunities in commodity and oil related markets.

As part of the net-benefit analysis of the deal, Innovation Department officials examined details of Aecon's current activities in the United States.

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 decision is in pointed contrast to the decision by the Australian government in 2015 to permit an acquisition of a prominent Australian construction company (John Holland) by a CCCI affiliate. CCCC is 64-per-cent owned by the Chinese government.

The World Bank in 2009 banned CCCI from bidding on construction projects for eight years due to a bid-rigging scandal in the Philippines.

Aecon Group Inc. (TSX: ARE) is a Canadian leader and partner-of-choice in construction and infrastructure development.

What happens to trade talks?

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