Canadian chem engineer SNC responds as analysts warn of 'problems'

Author: Stefan Baumgarten


TORONTO (ICIS)--SNC-Lavalin on Tuesday responded to analysts' warning of problems "piling up" for the Canadian chemicals and energy engineer after a client cancelled a big contract for sulphuric acid plants.

The contract cancellation by Chilean copper mining major Codelco comes as SNC remains at the centre of a political scandal in Canada.

The office of Prime Minister Justin Trudeau allegedly sought to prevent a criminal prosecution of the Montreal-based engineering major for alleged bribery.

Analysts, in discussing SNC on Canadian business channel BNN earlier on Tuesday, said it was highly unusual for an engineering company such as SNC to engage in a public dispute with a major a client over a contract.

“It seems to me like the problems are just piling up and piling up, which is something that happens when things start to go off the rails,” said Colin Cieszynski, market strategist at investment firm SIA Wealth Management.

Given SNC’s current troubles, Cieszynski advised long-term investors to stay away from the company's shares at this time.

Meanwhile, the political scandal continued on Tuesday as Trudeau's Liberals voted down a motion by the opposition Conservatives to launch a parliamentary ethics probe into the SNC political affair.

The Liberals earlier already shut down a separate inquiry by the parliament's judiciary committee. The political scandal will likely hang over SNC until federal elections in October are held as the Conservatives will continue to use it against the Liberals.

A SNC media official pointed ICIS to a statement the company issued in which it said it was "appalled and surprised" by Codelco's decision to cancel the contract.

The official added that SNC was assessing the legal and financial impact of Codelco’s decision and preparing dispute resolution actions.

He also noted SNC's order backlog of Canadian dollar (C$) $1.49bn ($1.11bn) at the end of December 2018.

In an interview last week, CEO Neil Bruce said that given that SNC’s revenues and order backlog were “pretty stable”, potential buyers could see that the company was not fairly valued by its current share price.

The SNC media official did not respond to questions about the company's share price, potential impacts of the Codelco dispute on SNC's prospects for gaining new orders, or on analysts' and media speculation that part of the company may need to be sold.

(Updates throughout with SNC's comment, as well as news of failed motion to launch a parliamentary ethics inquiry in paragraph 8)

($1 = C$1.34)