The Canadian Federal Government has blocked the sale of Manitoba Telecom Services’ (MTS) business division, MTS Allstream, to Egyptian investment group Accelero Capital Holdings.

The government rejected the transaction due to “unspecified national security concerns”, and has rejected an offer from both MTS and Accelero to take “whatever actions are necessary” to address the government’s concerns.

The Canadian operator announced plans in May to sell it’s business services unit, Allstream, for around $393m to Accelero Capital Holdings, which is controlled by Egyptian telecom tycoon Naguib Sawiris.

“MTS Allstream is extremely surprised and disappointed by this decision,” the firm said in a statement.

“MTS Allstream and Accelero have responded openly and constructively to Industry Canada’s requests for information in the 136 days since the transaction was announced, and Accelero has proposed far-reaching, comprehensive and binding undertakings to the Canadian government, including a commitment to invest $300 million over three years to pursue Allstream’s capital plans.”

Under Canada’s foreign investment terms, any bid exceeding $334m for a Canadian firm must pass a government review to determine that the deal generates a “net economic benefit” to the country. MTS added that it and Accelero believe this transaction is to Canada’s net benefit and, to the best of the firm’s knowledge, would not be injurious to national security.

The operator group said the transaction would have contributed to increased competition in Canada’s telecommunications sector; sent a strong message that Canada’s telecommunications sector is open to foreign investment; provided MTS the capital necessary to increase its investment in Manitoba’s telecom infrastructure; and resulted in $165m of funding for MTS pension plans benefitting more than 10,000 Plan members.

Accelero added that the transaction was structured to promote the government’s stated telecom investment policy while seeking to address any of its concerns.

“Throughout this process, we were comforted by Industry Canada that our filings were in order, our submissions complete and constructive, and our proposed binding undertakings serious and substantive so that the transaction would meet the ‘net benefit’ test,” said Accelero co-founder, Naguib Sawiris.

“We are disappointed by the Government of Canada’s unfounded and unexpected decision. Accelero has an impressive track record of successful investments in many of the countries with whom Canada enjoys global strategic partnerships. Accelero founders have previously led the investment of approximately $1bn in Canada’s telecommunications sector, beginning with the 2008 AWS spectrum auction.”