INSIGHT-How the Petronas deal fell victim to Canada's China fears

Fri Oct 26, 2012 12:59am EDT
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* Ottawa wanted to review China, Malaysia deals together

* Petronas felt blindsided; Canada energy stocks tumbled

* Investors doubt gov't "open door" to foreign investment

By David Ljunggren and Scott Haggett

OTTAWA/CALGARY, Oct 26 (Reuters) - Malaysian state-owned oil company Petronas was so confident last Friday that its purchase of Progress Energy Resources Corp would be approved by Canada that company officials had drafted a press release to announce the news.

At midnight Kuala Lumpur time, they were flabbergasted to learn that Ottawa wanted more time to make a decision.

Canada's 11th-hour veto of the $5.2 billion deal was the result of miscalculations and miscommunications, Reuters has learned through interviews with a dozen people briefed on the Oct. 19 events.

The ruling stunned investors, driving down Canadian energy stocks and pressuring the Canadian dollar. It also cast doubt on Prime Minister Stephen Harper's repeated assertions that the country has an open door to foreign investment.

The result was an embarrassment for the supposedly pro-business Conservative government, which needs an estimated $660 billion to develop Canada's energy sector over the next decade.   Continued...