The Canadian government, concerned about the impact of COVID-19 on corporate valuations, has issued guidance that it will pay particular attention to foreign direct investments of any value (meaning, even investments that are not subject to review under the Investment Canada Act (the “ICA”)).  The government’s announcement does not amend the ICA, nor any thresholds for review.  But it does issue a warning that the government intends to use the tools it has to review investments, including the national security review provisions under the ICA.

While the enhanced scrutiny is to apply to any acquisition of an interest in a Canadian business involved in public health or the supply of critical goods and services to Canadians or to the Government of Canada, all foreign investments by state-owned investors, regardless of value, or private investors assessed as being closed tied to or subject to direction from foreign governments, are also considered targets for such review.  

One can expect that Canadian companies involved in manufacturing needed supplies to address COVID-19 healthcare requirements (for example manufacturers of personal protective equipment), or companies involved in vaccine research or other health technology would be of particular concern.  As to critical goods and services, we can look to the Government’s own Guidance on Essential Services and Functions in Canada during the COVID-19 pandemic for assistance.  In that guidance, the Government cites energy and utilities, information and communication technologies, finance, health, food, water, transportation, safety and manufacturing. 

The first real test, however, of the Government’s application of its enhanced review will be a gold miner, TMAC Resources Inc., which operates the Doris gold mine in Nunavut’s Hope Bay.  In a deal announced two weeks ago, China’s Shangdong Gold Mining Co. Ltd. will pay just over C$207 million for TMAC, which has been struggling financially.  TMAC is listed on the Toronto Stock Exchange and has lost significant value since its IPO.  Control and the majority equity interest in Shandong is owned by the Chinese Government.  Whether Shandong can establish that the acquisition is of net benefit to Canada, and particularly so with such declared enhanced scrutiny, remains to be seen.  There has been certain concern expressed by the security community in Canada about Beijing’s control over critical metals and minerals.  Gold is, in volatile financial circumstances, a safe haven investment. 

As a general caution, foreign buyers should consider the guidance from the Canadian government on the ICA.  Foreign investment is still recognized as beneficial with a compelling case for the transaction.  But at the least, potential acquirors should be alive to the potential for a greater degree of review, and should consider the time-frame for review and when to submit an application for review, including a pre-closing notification under the ICA.