Construction of the McInnis Cement project in Gaspé, Quebec, Aug 21, 2015.Jacques Gratton/The Globe and Mail
Pension fund giant Caisse de dépôt et placement du Québec has taken control over the controversial McInnis Cement project in the province's Gaspé peninsula in the wake of massive cost overruns, as Bombardier Inc.'s founding family cedes majority ownership of the endeavour.
BlackRock Inc., the world's biggest fund manager, is also coming in with a $125-million investment.
The Montreal-based Caisse said Thursday that in light of significant cost overruns in the project and to protect its clients' capital, it has reassessed the profitability of the project and confirmed that it is worth pursuing.
But to address what it called "execution issues" in completing the project, it struck a deal with the Bombardier family's holding company, Beaudier, that gives the pension fund control of operating company McInnis Cement and the project. The development marks a symbolic retreat of sorts for the Bombardier family and particularly for chairman emeritus Laurent Beaudoin, who was the project's major instigator and the one who convinced Quebec to invest.
The Globe and Mail revealed in June that the Bombardier family and their private and public partners in the project were confronting cost overruns in the range of $400-million to $450-million, an embarrassing situation that provoked the ire of Premier Philippe Couillard's Liberal government. It also roused the Caisse, which demanded a change in project management and, now, a change in control in return for its continued investment.
"We had to fix the situation and that's what we did," Caisse spokesman Maxime Chagnon said. "We had to take control. We've reinvested some money in it to get the job done."
Initially pegged at $1.1-billion to develop, the McInnis Cement project is an effort to build a facility that can produce up to 2.5 million tonnes of cement a year from a site in Port-Daniel-Gascons, Que., and export it by boat to domestic and international markets. It was pitched to Quebec taxpayers as a way to help create jobs in the long-suffering Gaspé region.
The plant's equipment is among the most advanced in the industry, with lower operating costs than the market, the Caisse said in reaffirming its commitment to the project. Market conditions in North America are also better than at the time of the initial investment, the Caisse said, because demand has increased, the U.S. dollar has risen relative to the loonie and Canadian and American plants in McInnis's target markets are operating at or near capacity.
The Caisse said it would invest another $125-million in the project in the form of preferred equity, adding to its commitments so far of about $140-million. BlackRock, which has some $4.8-trillion (U.S.) in assets under management, will take a $125-million (Canadian) debenture. Together, the $250-million in new funds will be enough to complete the project, the Caisse said.
Other partners in the project include Quebec, which put in $100-million, in addition to offering a $250-million loan on commercial terms. National Bank of Canada, as sole bookrunner of a bank syndicate, has pledged a $360-million loan.
The Caisse and the Bombardier family are partners in Beaudier Ciment, which in turn controls McInnis Cement. Before the deal announced Thursday, the Bombardier family had majority ownership in Beaudier Ciment with a 55-per-cent stake to the Caisse's 45 per cent. Now the situation is reversed and the Caisse controls Beaudier Ciment.
The changes come after McInnis announced last week that Christian Gagnon, who was headhunted to lead the company and oversee the project, had left the company. A search has begun for his replacement.
The cement project is the Bombardier family's biggest investment outside Bombardier Inc. and BRP. The deal is still subject to certain conditions that include approval by National Bank.
Nicolas Van Praet