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Neil Bruce, the President & CEO of SNC-Lavalin, is photographed at the SNC-Lavalin office in downtown Toronto, on March 20, 2019.Fred Lum/The Globe and Mail

SNC-Lavalin Group Inc. says it did not cite job losses as a reason to be granted a settlement in its criminal corruption trial and did not threaten to move its head office out of Canada if prosecutors refused to agree to such a deal, undermining two key assertions from federal officials in the weeks-long controversy.

Chief executive officer Neil Bruce said SNC never made an argument for a settlement based on economic reasons such as job losses, adding that the legislation does not allow such an argument to be made. And Mr. Bruce said SNC did not give federal officials an ultimatum that a failure to grant a settlement would result in the company moving its headquarters. “We’ve never threatened anybody with that. Never, ever,” Mr. Bruce told The Globe and Mail on Wednesday morning in Toronto.

He said the possibility of such a move might have been discussed in terms of a potential negative outcome in the criminal case. “We need to make alternative arrangements,” he said, adding that if the company were to be banned from federal domestic contracts, engineering talent would be lost to U.S. and European rivals.

The Globe reported on Feb. 7 that officials in the Prime Minister’s Office put pressure on former attorney-general Jody Wilson-Raybould to reach a negotiated settlement with SNC-Lavalin on bribery and fraud charges that the company faces. The resulting political fallout has resulted in four departures: Ms. Wilson-Raybould has resigned from cabinet; Prime Minister Justin Trudeau’s principal secretary Gerald Butts has stepped down; former Treasury Board president Jane Philpott left cabinet, and Privy Council Clerk Michael Wernick announced his retirement.

SNC’s statements contrast with those from government officials, including testimony from Mr. Wernick and Mr. Butts. In his testimony, Mr. Wernick said government officials believed there was a risk of SNC moving its headquarters. Both he and Mr. Butts repeatedly cited the possibility of job losses as a key part of the discussion over whether to proceed with the prosecution of SNC.

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When asked during the justice committee hearings whether there was any evidence that jobs were at risk if SNC were not granted a negotiated settlement, Mr. Butts said he was briefed on the subject “multiple times” but could not recall “anything specific.”

The Montreal-based builder, once venerated for its global leadership and pristine balance sheet, is bracing for a trial on bribery and fraud charges that could last several years after it failed to win a settlement from federal prosecutors. A conviction could result in a 10-year ban on federal contracts and hurt its international business as well.

In a remarkably candid interview in which he was visibly angry about the way things have transpired, Mr. Bruce says many Canadians appear to have given up on the company and are vastly underestimating how crucial it is to the functioning of key parts of the country’s infrastructure.

“Nobody appears to give a crap about whether we fail or not in Canada,” Mr. Bruce said.

“We want to put this behind us. I mean we’ve been under this cloud for seven years. No other place in the world would you be under this cloud for seven years. … When is this going to end?”

Mr. Bruce maintained that SNC is a fully reformed company in terms of its business ethics, that those responsible for past wrongdoing are long gone, that the firm has done everything by the letter in terms of its communications with political officials in Ottawa.

He said Canadian authorities have failed to bring the former SNC executives at the centre of the bribery and fraud allegations to proper justice, suggesting much of the blame is now falling unjustly on the company as a result.

SNC-Lavalin still has no idea why it was not given the chance to strike a settlement, Mr. Bruce said. He said Canadians are failing to understand the consequences that a ban on the company in Canada could bring.

“All of our positions, all of the information that we’ve shared, is all about public interest and it’s about protecting the innocents,” Mr. Bruce said. “You really have an obligation to absolutely pursue the people who are responsible for this. And at the moment, I just feel like it’s upside down. I don’t see anybody being held to account apart from the company. And the company can’t go to jail. You could destroy the company. But I’m not quite sure what the hell that’s all about.”

Mr. Bruce emphasized on SNC-Lavalin’s importance to the national economy, not only in terms of the roughly 9,000 people it employs in Canada but also in its unique capabilities. Quebec has been the company’s biggest defender, saying it is a strategic company that needs to be protected. Mr. Bruce, however, said the company has an even greater weight for Ontario, noting that SNC has unmatched nuclear assets and technology and is working on several key projects for the province’s power producers.

“The biggest impact of SNC-Lavalin not doing business in Canada is Ontario, not Quebec. It’s Ontario,” Mr. Bruce said. “Because I’m not sure who’s going to do [Ontario Power Generation]. I’m not sure who’s going to do Bruce Power. I’m not sure who’s going to do Pickering. I’m not sure who’s going to do Chalk River. Apart from the Americans. They’re the only ones who have the capability to step in. And if Canada thinks that’s a neat solution, then hey, let’s settle for the bronze again.”

Mr. Bruce, a Scotsman hired by SNC-Lavalin in 2013 from Britain’s AMEC PLC, is trying to write a new chapter for SNC that involves expand the company to $15-billion in annual sales and adjusted profit of $5 a share by 2020. But he’s been stymied in that effort by legal trouble in Canada that won’t go away and unexpected problems disclosed in January, notably a payment dispute in a contract for Chilean copper producer Codelco involving the construction of two sulfuric-acid plants. The problem boils down to mandating SNC subcontractors to do work that Codelco hadn’t approved.

SNC management has also said it is unsure about the company’s ability to win new work in Saudi Arabia amid strained political relations between Canada and the Middle East kingdom. Although current projects are unaffected, Saudi clients have made it clear that they might exclude SNC from bidding on future work while the diplomatic rift continues, Mr. Bruce has said. The company acquired the bulk of its oil and gas capability in August, 2014, through the purchase of Kentz, just before global crude prices tanked.

SNC slashed its quarterly dividend by more than half on Feb. 22 to conserve cash in the wake of the problems. It also won debt covenant relief on certain loans from lenders. S&P Global ratings cut SNC-Lavalin’s credit rating to the cusp of junk last month, saying it expects SNC “will face headwinds over the next couple of years that contribute to slower growth as well as earnings and cash-flow volatility.”

Trouble has mounted quickly and taken the market by surprise, leading to calls by some investors for the company to take deeper actions, such as selling assets. Confidence in management has also been rattled, to the point where some shareholders, such as Montreal-based investment firm Palos, have exited their long-held positions in the company.

“We believe SNC-Lavalin will struggle to win projects and attract new fundamental investors for as long as its legal troubles persist,” Raymond James analyst Frederic Bastien said in a Feb. 25 research note, adding that politicization of the company’s situation dims the chances for a legal settlement. “The scandal lends itself well to campaign-time propaganda" heading into federal election this fall, he said.

Mr. Bruce took issue with the narrative that his 9,000 Canadian workers would find jobs elsewhere if SNC was banned. He said while that may be true, the talent and expertise will shift to U.S. or European rivals, companies that have benefited from deferred prosecution agreements (DPA) similar to the one SNC is seeking.

“Yes, the 9000 people will get a job. I have no doubt whatsoever about that,” Mr. Bruce said. “But they’ll be working probably for a U.S. company. And there’s a 75-per-cent chance that the U.S. company that they’re working for has done a DPA. How ironic is that?”

SNC’s own research shows that at least three quarters of its competitors in the engineering and construction space have gone through some form of DPA or settlement in their home country, Mr. Bruce said.

SNC stock fell more than 1 per cent in Toronto on Wednesday to close at $34.24. It is trading at levels not seen in a decade.

The process already under way to sell a piece of its stake in the Highway 407 Toronto-area toll road continues to progress, Mr. Bruce said. Selling the stake would resolve the company’s balance-sheet stress based on analysts’ expectations that it would fetch $2-billion after tax, according to National Bank analyst Maxim Sytchev.

The past continues to haunt the company. The RCMP in 2015 laid one charge of bribery against the company under the Corruption of Foreign Public Officials Act and one charge of fraud under the Criminal Code. It is alleged that the engineering firm paid millions of dollars in bribes to individuals in the former Libya government of the late dictator Moammar Gadhafi between 2001 and 2011 to secure government contracts.

To protect against the potential damage caused by a multiyear court fight, SNC revived a team of directors and external advisers in October, 2018, to analyze the options for reshaping operations. Mr. Bruce declined to give much in the way of additional detail about that effort on Wednesday, but said “all options are on the table,” including breaking the company up and shifting more business outside Canada.

Under current federal procurement rules, SNC-Lavalin would be banned for up to 10 years if its trial ends in a conviction. Observers say it could likely weather that ban as a company. But what’s not known is how much additional business it would lose from other clients in Canada and elsewhere, many of whom might have policies preventing them from doing business with convicted suppliers.

SNC has asked for a DPA that would allow it to settle the charges without going to trial to spare what it calls its “innocent” stakeholders. But it says it is now focused on preparing for a trial, in which it intends to vigorously defend itself. The company will not invoke arguments that it took too long for its case to come to trial, Mr. Bruce said.

SNC-Lavalin has symbolic importance in Quebec, as one of the largest truly global companies to have its headquarters in the province. And there are thousands of jobs involved. In a Sept. 17 meeting between Mr. Trudeau and Ms. Wilson-Raybould, she said he raised both issues. “The Prime Minister asks me to help out – to find a solution here for SNC – citing that if there was no DPA, there would be many jobs lost and that SNC will move from Montreal,” she testified.

Mr. Bruce apologized for the company’s darker past in an open letter to Canadians published last fall. “The truth is, the events prior to 2012 that led to the federal charges should never have taken place,” he said.

The SNC CEO has said he was not aware of any political pressure on Ms. Wilson-Raybould. And he has declined to comment on how her successor, Montreal-area MP David Lametti, would handle the file.

Fixed-income investors have shown more optimism than retail investors in SNC’s ability to weather the storm. The company’s five-year corporate bond, due in 2023, has been relatively stable throughout the controversy, suggesting the company’s longer-term investors are confident that their dollars are safe. After falling as much as 3.1 per cent below par in mid-February, the bond has since recovered and now trades at 1.82 per cent below par.

Much of that fixed-income investor faith is tied to SNC’s backlog. The company’s order book of work won but not yet completed stood at $14.9-billion at the end of December, proving it can still bag contracts in different parts of the world. Recent wins include a three-year deal for engineering work on Chevron’s oil operations in Australia, announced on March 12, and a preliminary agreement with the City of Ottawa for a $660-million extension for its Trillium light-rail transit line, announced on March 7.

“There’s a lot of bids out there and still more to come,” AltaCorp Capital analyst Chris Murray said. “It does take time to get that [infrastructure funding] in. But we have started to see a number of awards come through and they’ve won a fair share of those.”

With reports from Les Perreaux and David Berman.

Follow Nicolas Van Praet on Twitter: @NickVanPraetOpens in a new window
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