Alcoa bribery settlement could be ‘positive’ for SNC-Lavalin, says analyst

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MONTREAL – Alcoa’s settlement of a bribery case in Bahrain is positive for SNC-Lavalin and suggests the engineering giant will face less than $196 million in penalties related to the improper payments it disclosed nearly two years ago, an industry analyst said Thursday.

A subsidiary of Alcoa Inc. (NYSE:AA) pleaded guilty Thursday and, along with the parent company, will pay a total of US$384 million in penalties for bribing officials in Bahrain through a London-based middleman.

The penalties relate to more than US$110 million in illegal payments made in 2004 to Bahraini officials.

Maxim Sytchev of Dundee Securities says the 1:3.5 ratio of illegal payments to fines in the Alcoa case suggests that potential SNC-Lavalin fines won’t exceed $200 million, or about 40 per cent of its net cash as of the third quarter.

“Bottom line, corruption dynamic should fade in investors’ memory as soon as the settlement takes place; importantly, it should be manageable,” he wrote in a report.

Sytchev said penalties could even be less since most high-profile cases have resulted in payouts that equal or double the illegal payments. The exception is Griffiths Energy, now called Caracal Energy, which paid a $10-million fine related to a $2-million bribe.

“With SNC’s net cash position of $450 million and 151 million shares outstanding, the Alcoa read-through amount would certainly be a very positive development for SNC-Lavalin,” Sytchev said.

“Any amount less than $300 million as far as the settlement for SNC goes, would be viewed positively by investors.”

SNC-Lavalin said it couldn’t “speculate” on penalties “as there is no parallel . . .between Alcoa’s case and ours,” spokeswoman Lilly Nguyen wrote in an email.

The Montreal-based engineering giant (TSX:SNC) disclosed in March 2012 that it had identified $56 million in improper payments made by former company officials, some of whom face fraud charges related to a superhospital in Montreal.

The company hasn’t been charged but has agreed to a 10-year bidding ban by a number of affiliates on World Bank projects as a result of bribery allegations, primarily in Bangladesh.

Former CEO Pierre Duhaime and vice-president Riadh Ben Aissa face criminal allegations. And SNC and several Quebec engineering firms have come under scrutiny at the Charbonneau commission studying corruption in Quebec.

Sytchev expects SNC-Lavalin’s earning power will materially improve over the next two years, while the value of its concession investments, assets and cash are $33.74 per share but could reach $40 per share when AltaLink is sold and Highway 407 ETR rates increase by eight per cent this year.

On the Toronto Stock Exchange, SNC shares closed up 52 cents at $48.74 in Thursday trading.

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