Quebec is weighing a request by the shareholders of McInnis Cement to swap the debt the province holds in the venture for equity, raising questions about the financial health of the controversial Gaspé Peninsula project as it increases production.
Jean-Pierre D’Auteuil, spokesman for Quebec’s Ministry of Economy and Innovation, confirmed information obtained independently by The Globe and Mail that a request has been made to the ministry and to Investissement Québec, the government’s investment arm, to convert $250-million of debt into shares in McInnis. The application is currently being reviewed, he said.
Asking the province to swap the entirety of the debt into equity suggests the shareholders are looking for some financial breathing room. Such refinancing deals with creditors are often made to reduce a corporation’s liabilities and help it continue to operate. In addition to its $250-million loan, the province holds $100-million worth of equity in the project for a total public investment of $350-million.
Quebec’s Bombardier-Beaudoin family launched McInnis, Canada’s first new cement plant in half a century, with government backing in 2014. Production of the first cement started in 2017 with a goal of cranking out 2.5 million tonnes annually. The bet is that the technologically advanced factory in Port-Daniel–Gascons will fare well against competing installations on the continent – many of which are 50 years old or more.
Pension fund Caisse de dépôt et placement du Québec took over control of the project from Beaudier Group, an investment vehicle for the Bombardier family, in 2016 after costs ballooned to $1.5-billion from an initial projection of $1.1-billion. Costs have risen further as the plant and its shipping terminals are brought toward full capacity.
National Bank of Canada is a senior creditor in the venture with a $360-million loan. BlackRock Inc., the world’s biggest money manager, is also part of the investor group with a $125-million debenture.
Caisse spokesman Maxime Chagnon insisted the pension fund is satisfied with the progress made on the project. “Now that the construction is completed, we are working with our financial partners on the growth plan and on optimizing the capital structure that would reflect the reduced risk profile as well as addressing the needs of an operating company," he said. "[This is] the normal course of events in such a project.”
Beaudier did not respond to a request seeking comment.
The Caisse hired advisers early this year to help explore options for McInnis, including a sale. Twelve parties signed confidentiality agreements and three bidders made offers for the asset but all were judged too low, said a person familiar with the process. German multinational HeidelbergCement AG was among those interested, the person said.
It remains unclear what the pension fund will do with McInnis. "Our objective is not to be a cement plant operator in the long term,” then-Caisse senior vice-president Christian Dubé told reporters in February. Mr. Dubé later quit the Caisse to join the Coalition Avenir Québec party and was elected to the Quebec Legislature in October; he now leads Quebec’s Treasury Board.
A confidential progress report on the project prepared by independent consultancy Hatch dated Oct. 5 said McInnis Cement is currently discussing potential amendments to its credit agreement with lenders. A separate letter from McInnis to National Bank dated Oct. 18 states that McInnis and its shareholders are finalizing a plan to secure financing and potential additional shareholder contributions to cover expenses related to “growth capex [capital expenditures] and working capital needs, required to be paid by Dec. 31, 2018.”
One key challenge at the factory right now is increasing production and maintaining that increase consistently, Hatch states in its report. Based on data received though September, output was more than 25 per cent behind target for three weeks of the month, Hatch said.
Sales are also an issue. Although McInnis has not had any trouble selling its production so far to customers, projected sales are tracking below forecasts, according to Hatch. The company sold a total volume of 677,000 tonnes of cement this year to the end of August, according to the report. Shipments will have to average 184,500 tonnes a month to meet the 1.4-million-tonne target for the year established in June, the report says.
McInnis backers note the factory will use up to 40 per cent less fuel per tonne of cement than traditional cement plants, reducing greenhouse gas emissions. But cement-making is a highly energy-intensive process, turning the Gaspé operation into a magnet for criticism from almost Day 1.
“This project should never have moved forward,” said Patrick Bonin of Greenpeace Canada. “The only reason why it has been constructed is because hundreds of millions of public dollars have been invested in support."