It is the scandal that just won't die.
Just when you think that SNC-Lavalin Group Inc. cannot get any more arresting, a new development dashes all hopes the Montreal company will fall back into the anonymity and dullness that normally characterizes the engineering business.
Quebec's anti-corruption squad just cast a wider net over McGill University Health Centre's new superhospital, whose construction is marred by suspicions of fraud. Two former SNC executives, including ex-president Pierre Duhaime, face graver accusations. And new arrest warrants have been issued for three alleged conspirators, including Dr. Arthur Porter, former head of the MUHC.
The news comes just days after The Globe and Mail and Il Sole 24 Ore revealed that investigators are probing SNC's operations in Algeria over bribes the company allegedly paid to secure at least $1-billion in contracts with oil producer Sonatrach. After Libya, Tunisia, Bangladesh, Mexico, Canada and Switzerland, Algeria is the latest country drawn into a scandal that now spans continents.
One could forgive CEO Robert Card, an American, for having second thoughts about moving to Montreal.
But SNC's new boss has allies. One of them is Michael Sabia, head of the Caisse de dépôt et placement du Québec.
Asked whether SNC-Lavalin is still a suitable company to invest in, given the Caisse's ethics policy, Mr. Sabia responded that "now is not the right time to close the SNC-Lavalin file." Especially, one might add, when hedge fund manager West Face Capital, a Toronto firm known for shareholder activism, has just bought a big position in SNC's equity.
"This is an important company with tremendous potential for Quebec and for Canada," Mr. Sabia added. The Caisse won't disclose how many shares it holds until the release of its annual report, but at the end of 2011, it was one of SNC's top shareholders with close to 8.9 million shares.
Investors seem so accustomed to bad news that SNC shares barely budged upon the latest developments. The stock price, at about $47, is almost back to where it was a year ago before the company announced a profit warning and an investigation of $35-million worth of suspicious payments.
One cannot help but wonder whether some shareholders are in denial.
SNC is now tackling its problems head on, with the departure of a series of executives and the appointment of a "Mr. Clean," a former compliance officer at Siemens. Clearly, the firm is willing to undergo chemotherapy to eradicate all the questionable business dealings the company allegedly struck to clinch contracts.
Yet the fallout of the bribery scandal could cripple SNC's ability to conduct business going forward.
If former SNC executives are found guilty, the firm could be barred from bidding on public works contracts in Quebec under the new integrity law passed by the Parti Québécois government. SNC derives roughly 20 per cent of its work from Quebec, though it doesn't disclose what proportion of that is public contracts.
The World Bank has also barred temporarily from its contracts an SNC unit that bid to build a bridge in Bangladesh, after rumours of under-the-table payments derailed the public tender. The matter is still under investigation.
The multi-faceted scandal is also incredibly distracting for SNC's management, even if chairman Gwyn Morgan said the board would deal with past matters to allow Mr. Card to concentrate on SNC's future business. Prolonged controversies tend to be harmful even to companies at the top of their game.
Mr. Sabia knows this and doesn't minimize the potential fallout. But when he speaks of SNC-Lavalin, you get the distinct impression that there are other considerations at work. "We don't have a lot of business with a world scale and with a world potential in Quebec and also in Canada," he said. Translation: Quebec cannot afford to lose SNC-Lavalin.
If you think Quebec was mistaken when it defended the Canadian ownership of the Rona Inc. hardware chain, wait until you see the backlash to anything that would threaten SNC's place in Montreal's business community. Scandal or not, it's still considered a jewel of Quebec Inc. And it still has the support of the Caisse.
"For us, [Quebec's] economic development and returns go hand in hand," Mr. Sabia boasted in the Caisse's majestic lobby as the pension fund manager unveiled its 2012 return of 9.6 per cent.
Under Mr. Sabia's reign, the pension manager's investments in Quebec have shot up to $47.1-billion from $33.5-billion in 2009, a 40-per-cent increase. But sticking with SNC and Genivar Inc., another engineering firm in hot water, is a gamble. If these companies are burned by their past actions, the fire will spread all the way back to the Caisse.