BUSINESS

SNC-Lavalin unaware of corruption investigation by Tunisian commission

04/30/2012 02:50 EDT | Updated 06/30/2012 05:12 EDT
MONTREAL - SNC-Lavalin says it has never officially been contacted by Tunisian authorities reportedly investigating a $320-million contract the Montreal-based engineering giant was awarded in 2010 with an Italian partner.

On Monday, Montreal's La Presse reported that the North African country's commission of inquiry into corruption and embezzlement has opened a file on the awarding of the contract with Ansaldo Energia.

La Presse said the commission has found a document incriminating the embattled company in the palace archives of ousted president Zine el-Abidine Ben Ali, who fled the country in January 2011.

"We have never been officially contacted by any authorities about such an investigation," SNC spokeswoman Leslie Quinton said in an email.

"We continue to be committed to our people and projects in North Africa and intend to honour these commitments."

Efforts to uncover activities by the former Tunisian leader come as SNC-Lavalin continues to feel the fallout from $56 million worth of payments that were directed through its Tunisian office to unknown sales agents.

The rogue payouts prompted it to part ways with several senior executives, including its former CEO.

SNC's former head of construction sits in a Swiss jail. Riadh Ben Aissa hasn't been charged but is being held on suspicion of corrupting a public official, fraud and money laundering tied to his dealings in North Africa.

Justice officials said the former SNC executive vice-president has been in custody since mid-April, stemming from an investigation the agency launched last May.

At its request, the RCMP executed search warrants at SNC-Lavalin's Montreal headquarters, said Jeannette Balmer, a spokeswoman for Switzerland's federal prosecutor's office.

"To ensure the smooth running of the procedure, (the department) will not release other elements," she said in an email.

It was not immediately clear what events led to Ben Aissa being taken into custody by Swiss authorities.

Ben Aissa, who parted ways with SNC-Lavalin in February, was in charge of business dealings in his native Tunisia as well as Libya, where the company won lucrative contracts with the former regime of Moammar Gadhafi.

The whereabouts of former controller Stephane Roy weren't known.

SNC-Lavalin's name has been dragged through the mud over the past year, causing its shares to plummet.

The company's extremely low valuation could prompt bargain hunters from around the world to kick its tires, said Maxim Sytchev of Alta Corp Capital.

"A company could be looking to step in and be opportunistic," he said in an interview.

SNC-Lavalin's (TSX:SNC) shares gained a little Monday on the heels of the arrest of Ben Aissa and the reports about a corruption investigation in Tunisia.

The stock gained 24 cents to $37.21 in afternoon trading on the Toronto Stock Exchange. Over the past year, its shares have plummeted from $59.97.

At the current price, investors are giving about a $10 per-share value to its core engineering operations, which is a third to half its historic worth, he said.

That reflects a huge discrepancy with the value of its peers.

Sytchev said SNC's current valuation isn't tenable and it could be only a matter of time before strategic or other investors chase its value, including its stake in lucrative toll road and other concession investments.

"I think over time something has to give and whether there could be people potentially getting involved in this name — an activist hedge fund or whatever ... we still think there's definitely a lot of value in the name."

Neil Linsdell of Versant Partners said investors will be closely watching SNC-Lavalin's first-quarter results on Thursday for signs that the alleged wrongdoing isn't scaring off clients.

The company's earnings are expected to increase more than six per cent to 52 cents per share on $1.84 billion of revenues, according to analysts polled by Thomson Reuters.

Linsdell said the company needs to produce good results that show no drag on backlog, orders and financial charges.

"If they can do that again in the second quarter, that's when you're going to see the majority of the recovery in the share price," he said in an interview.

Sytchev added that the biggest push back he's getting from institutional investors is the belief that SNC-Lavalin will be permanently impaired, leaving it unable to compete.

Notwithstanding all the negative news, he said SNC remains a strong, profitable company that is entrusted around the world because of its ability to complete large projects.

He said Ben Aissa's arrest should be good news for the company because authorities can now question the person supposedly responsible for the siphoning off of $56 million.

"This means that this could be the beginning of the end" of the story.

Sytchev said he doesn't believe SNC-Lavalin will back away from the fast-growing North African region, which is funding its modernization largely from oil revenues.

"From a strategic perspective there is more risk but there's definitively much more return. They're certainly not going to be walking away from the relationships that they've built up over the last 20 to 30 years."