INSIGHT-Security fears dogged Canada debate on China energy bid

Sun Dec 23, 2012 3:14pm EST
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* Canada's spy agency warned about Chinese takeovers

* US intervention made approval of CNOOC deal more difficult

* CSIS seen satisfied with new foreign investment rules

By David Ljunggren

OTTAWA, Dec 23 (Reuters) - In September, two months after China's state-owned CNOOC Ltd made an unexpected $15.1 billion bid for Canadian energy company Nexen Inc, Canada's spy agency told ministers that takeovers by Chinese companies may threaten national security.

The rare warning from the Canadian Security Intelligence Service (CSIS), which was disclosed to Reuters by intelligence sources, did not stop the takeover. That was approved by Canadian authorities earlier this month.

But the intervention and an influential U.S. lawmaker's warning in October that Canadian companies should be careful about doing business with Chinese telecom equipment companies Huawei Technologies Co and ZTE Corp made the approval process for the deal more difficult than initially expected.

"CSIS did not like the Nexen bid and thought it was a bad idea for Chinese firms to be investing in the oil sands. It all played into their greater fears about firms like Huawei," said one person familiar with the agency's concerns. "They do not want to wake up one day and realize a crucial sector of the economy is under the control of foreign interests."

And after listening to the spy service, which usually keeps a low profile, Canada drew up surprisingly tough foreign investment rules that were unveiled when approving the Nexen deal, China's biggest-ever successful foreign takeover. In a clampdown on companies it deems influenced by foreign governments, Canada will block similar purchases in the future.   Continued...