Skip to main content

SNC-Lavalin Group Inc. is considering selling some of its stake in the Highway 407 ETR, marking a significant shift in the management team’s strategy with the investment.

A year ago, SNC said it had no plans to put its stake in the toll road on the market. “If someone wanted to acquire part of our stake at a future value, absolutely we’d listen to that,” chief executive officer Neil Bruce told The Globe and Mail in September, 2017. “But at the moment, we just see it as an immature asset that’s going to go up in value.”

On Wednesday, however, SNC revealed that it has engaged two financial advisers, CIBC World Markets and RBC Dominion Securities, to advise on a potential sale of part of its investment. SNC is considering lowering its stake to 10 per cent from 16.76 per cent.

Story continues below advertisement

If this portion of the stake is sold, it could deliver $2.2-billion to SNC, according to National Bank Financial analyst Maxim Sytchev. However, he cautioned that infrastructure assets are expensive at the moment. While this is the opportune time for SNC to sell, buyers may not be interested in paying top dollar.

“To be clear, we believe that the 407 is currently undervalued. We believe that its value is in excess of the current analyst consensus; this is the only way to truly demonstrate the value," Mr. Bruce said on a conference call, adding that he hopes the sale will boost the company’s total market value.

SNC is only selling part of its ownership of the highway to maintain a “strategic advantage” with the investment, Mr. Bruce said. The company believes that a potential sale or other transaction could “augment the valuation” of its capital investments, he added.

The news of a potential transaction was announced as part of SNC’s quarterly earnings on Thursday.

SNC’s exploration of a sale follows the company’s $3.6-billion acquisition of British engineering firm WS Atkins in 2017.

After the purchase, debt rating agency Standard & Poor’s affirmed SNC’s rating at BBB and gave the company a stable outlook – however, this outlook “places considerable emphasis on the company’s willingness (and ability) to monetize its large investment in the Highway 407,” according to SNC’s regulatory filings earlier this year.

Highway 407 ETR is a 108 kilometre-long toll highway that runs across the northern border of Greater Toronto Area. It has a 99-year concession agreement that expires in 2098. In fiscal 2017, the highway’s dividends to SNC contributed $142-million of the company’s earnings before interest and taxes.

Story continues below advertisement

SNC has held its stake in the toll highway since 1999. Cintra Global is the largest owner of the road, with 43 per cent, while Canada Pension Plan Investment Board owns 40 per cent.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter