S&P downgrades SNC-Lavalin, citing charges, diplomatic feud

MONTREAL The woes won’t stop piling up for SNC-Lavalin Group Inc.

Debt rating agency Standard & Poor’s downgraded the company Tuesday, citing diplomatic tensions and criminal charges against the beleaguered engineering giant as among the financial headwinds buffeting a firm now swept up in a political firestorm.

A pair of slashed profit forecasts from SNC-Lavalin in the past three weeks — which first halved the pershare earnings target and then cut it again by more than 40 per cent — will make for a higher debt ratio, the agency said, prompting the downgrade to BBB- from BBB.

An ongoing feud between Canada and Saudi Arabia, where the company has 9,000 employees, is jeopardizing future contracts in a volatile oil and gas industry, the agency suggested.

“In our view, tension between the two countries has weakened SNC’s competitive position in the Middle East, and will likely affect a meaningful share of the company’s future growth.”

Standard & Poor’s also highlighted the prospect of a ban of up to 10 years on contracts with the federal government in Canada.

The ban is one possible outcome that could flow from a conviction on fraud and corruption charges stemming from alleged dealings with the Libyan regime under Moammar Gadhafi between 2001 and 2011. The company has pleaded not guilty.

In 2013, SNC-Lavalin was barred from bidding on any construction project backed by the World Bank for up to 10 years, constraining its options.

“The pie’s getting awfully small to survive,” said Ian Lee, an associate professor at Carleton University’s business school. “They’re going through very, very tough times.”