One of Canada's biggest investors in natural resource stocks is calling on the federal government to clarify its foreign takeover rules for the sake of investors.
In the wake of the recent decision to block the takeover of Potash Corp. of Saskatchewan Ltd., shareholders need to know which other companies could face restrictions in the future, said David Denison, chief executive officer of the Canada Pension Plan Investment Board (CPPIB).
Mr. Denison said his fund, which manages $139-billion of investments for the Canada Pension Plan, accepts the Harper government's decision to reject BHP Billiton Ltd.'s offer to buy Potash Corp., but needs to know the rules of the game for other companies.
"We can live with whatever framework is put in place by countries around the world - and we realize they're going to put frameworks in place," Mr. Denison said in an interview. "What is very difficult from an investor point of view is if there isn't clear transparency around how the framework is going to be applied or what the actual criteria are going to be."
Most of the CPPIB's largest public equity holdings in Canada are in resource stocks, including some that have been cited as examples of potentially strategic holdings that could be affected by a shift in foreign investment rules.
In its most recent disclosure, as of March 31 the CPPIB held 2.2 million shares of Potash Corp. worth over $270-million at that time, plus $132-million worth of shares in potash producer Agrium Inc.
The fund also had extensive holdings in oil sands stocks, including Suncor Energy Inc., Cenovus Energy Inc. and Canadian Natural Resources Ltd., and held large stakes in some of the country's other biggest resource companies, such as Barrick Gold Corp., Goldcorp Inc., Talisman Energy Inc., Encana Corp., Teck Resources Ltd. and Agnico-Eagle Mines Ltd.
Also yesterday, the CPPIB reported its fortunes rebounded in the quarter ended Sept. 30, posting a 6.6-per-cent investment return after losing 1.3 per cent in the quarter ended June 30.
Assets climbed by $8.9-billion to $138.6-billion, with $8.4-billion of the gain coming from investment returns and $500-million coming from member contributions to the fund. The gains came from strong equity markets worldwide, with the U.S. market posting its best investment returns in 70 years, Mr. Denison said.
The federal government has said it will review the Investment Canada Act and recommend improvements, but has not yet provided details about how it will assess foreign takeover bids when they involve potentially strategic natural resources. Industry Minister Tony Clement has pledged to spell out some guiding policies when he clarifies the government's reasons for rejecting the BHP bid following a 30-day appeal period.
Mr. Denison said he supports the review of the act and any clarification of investment rules.
"That, to us, is the really critical issue from an investor point of view," he said.
He added the CPPIB wasn't especially disappointed about the deal's rejection, despite a 3.3-per-cent drop in Potash Corp.'s share price the day after the news was released, because the fund is a long-term shareholder and believes there could be even more value in the company down the road.
"There are certainly scenarios that we analyze that say we will gain more than the takeover price from our ownership," he said.
With $138.6-billion in assets, the CPPIB may have become Canada's largest investment fund in the last quarter, topping the Caisse de dépôt et placement du Québec, which has historically been the largest money manager in Canada. The Caisse last reported its financial results as of June 30, saying it managed $135.8-billion in assets for public and private sector pension plans.
But unlike the CPPIB, the Caisse does not report its returns quarterly, so it has not revealed its asset size as of Sept. 30. If the Caisse earned returns in the last quarter similar to those of the CPPIB, it would still have retained its title as the largest fund in Canada with around $144-billion in assets. It will not report its returns until early next year for the six months ended Dec. 31.