SNC faces ‘new level of risk’ in Saudi feud
Canada’s diplomatic clash with Saudi Arabia is threatening a key pillar of SNC-Lavalin Group Inc.’s growth plan.
The Montreal-based builder gained additional exposure to the kingdom with its two biggest acquisitions, the 2014 purchase of Ireland’s Kentz Corp. and last year’s deal for WS Atkins of the U.K. SNC chief executive Neil Bruce is counting on business in the Middle East to bolster his drive to increase profit more than 50 per cent by 2020.
SNC is getting caught in the crossfire after the kingdom froze diplomatic ties and new business deals with Canada last week, following a call by Canadian Foreign Minister Chrystia Freeland for Saudi human rights activists to be released from prison. The flare-up spooked investors in Canada’s biggest construction company, which gets about 11 per cent of sales in Saudi Arabia.
“This dispute adds a whole new level of risk to the SNC story,” Chris Murray, an AltaCorp Capital analyst in Toronto, said in a telephone interview. “The problem is, no one is sure how to quantify the magnitude of the risk. There is a range of outcomes here. The work they do in Saudi Arabia isn’t exactly low-margin work.”
SNC posted its biggest weekly decline in more than a year in the wake of the dispute.
The shares climbed 1.54 per cent to close at $54 in Toronto after a small decline on Monday.
The builder said it’s still assessing the impact of Canada’s tensions with Saudi Arabia.
“If a widespread commercial embargo on Canadian commercial interests in the Kingdom of Saudi Arabia were to be implemented on a prolonged basis, there will be an impact on our future financial performance,” the company said in a statement last week.
SNC, which has about 10,000 staff in the country, declined further comment. At stake for SNC is almost $1 billion in annual revenue in Saudi Arabia.