By Karen Johnson
With Cnooc's Ltd.'s (CEO) hefty $15.1-billion takeover of Nexen
Inc. (NXY) set to close this week, players in the foreign-exchange
market are bracing for the fallout.
Big foreign merger-and-acquisition deals typically give a boost
to a country's currency, by triggering a sharp surge in demand. And
the bigger the deal, the stronger the boost.
Chinese-owned Cnooc's bid for Nexen is the fifth-largest
acquisition of a Canadian company on record, according to
Dealogic.
Still, the price tag isn't massive by global standards, and some
analysts are skeptical the resulting flow will move the currency in
a big way.
The demand for Canadian dollars created as shareholders convert
their U.S.-dollar payouts to loonies is likely already factored
into the current exchange rate, analysts say.
"But we've been surprised before with repatriation flows from
Canadian-based shareholders on other deals," said Camilla Sutton,
chief currency strategist at Scotiabank in Toronto. "And this is
the week."
The biggest surprise came after Anglo-Australian mining giant
Rio Tinto's (RIO.AU) $38.1-billion buy of Montreal-based Alcan in
2007, a deal that -- like Cnooc's -- was priced in U.S.
dollars.
When the deal closed, Alcan's mostly Canadian shareholders were
paid in dollars, and dumped them en masse for loonies.
The U.S. dollar plummeted, dropping about five Canadian cents
and trading down to C$0.9059, a low never seen before, or
since.
Of course, that takeover deal was far bigger, the market was
more thinly traded, and Alcan's shareholders were predominantly
Canadian.
Jack Spitz, managing director of foreign exchange, financial
markets and derivatives at National Bank in Toronto, estimates
Canadian-based shareholders may only account for about $4 billion
of the $15.1 billion total being paid out by Cnooc.
Still, with the 3% drop in the Canadian dollar over the past 10
days, Mr. Spitz said, repatriation will likely be an attractive
option for those shareholders. The U.S. dollar simply goes further
in Canada than it did just a couple of weeks ago.
Mr. Spitz said traders are bracing for "chunky flow."
In 2007, the U.S. dollar was already sloping downward against
the Canadian dollar, when it plunged to its historic low. Now, the
slope is upward, and that might mean a jump in loonie demand simply
prevents the greenback from rising further.
"It's probably not going to reverse the rally for a sustained
period of time," said Ms. Sutton. "But still it is a risk, and
sometimes it's hard to step in front of those flows when we have
the market moving quite strongly."
Write to Karen Johnson at karen.johnson@dowjones.com