The Caisse has been dragged into the bit­ter Bom­bardier-Boe­ing dis­pute

The Globe and Mail (Atlantic Edition) - - REPORT ON BUSINESS - KON­RAD YAK­ABUSKI kyak­abuski@globe­and­

Vet­eran cor­po­rate lawyer on Bay Street

Michael Sabia could have done with­out be­ing dragged into the bit­ter Bom­bardierBoe­ing trade dis­pute that has Caisse de dépôt et place­ment du Québec once again fend­ing off charges that it bows to the wishes of the Quebec govern­ment of the day.

Since Mr. Sabia took over at the Caisse in 2009, he rarely misses an op­por­tu­nity to in­sist there’s a new sher­iff in town and that the pro­vin­cial pen­sion man­ager he runs takes or­ders from no one. He stiffly points out that the Caisse is legally in­de­pen­dent from the govern­ment. And the in­sti­tu­tion’s first non-Que­becborn chief bris­tles at be­ing taken for a po­lit­i­cal lackey.

To be fair, Mr. Sabia’s track record in­deed sug­gests the once sym­bi­otic re­la­tion­ship between the Caisse, Quebec Inc. and the pro­vin­cial govern­ment is a thing of the past. The days when the Caisse in­ter­vened willy-nilly to favour Quebec-based com­pa­nies are long over.

Still, the Caisse re­mains unique among Cana­dian in­sti­tu­tional in­vestors in that it has a dual man­date, en­trenched in law, to achieve an op­ti­mal re­turn on cap­i­tal “while at the same time con­tribut­ing to Quebec’s eco­nomic de­vel­op­ment.” It is that lat­ter clause, un­der­lined in the U.S. Depart­ment of Com­merce pre­lim­i­nary de­ci­sion slap­ping coun­ter­vail­ing du­ties on Bom­bardier’s C Se­ries air­craft, that con­tin­ues to raise doubts about the Caisse on Bay Street and beyond.

“The peo­ple who will speak can­didly will con­tinue to be very skep­ti­cal of the Caisse’s in­de­pen­dence,” one vet­eran cor­po­rate lawyer on Bay Street of­fers. “Some­times, it doesn’t mat­ter. But when Quebec and Quebec na­tion­al­ism are im­por­tant, the Caisse is not go­ing to act in a man­ner that is con­trary to the po­si­tion of the Govern­ment of Quebec.”

Although the Com­merce Depart­ment deemed the Caisse a “man­datary of the state,” it con­cluded that the pen­sion-fund man­ager’s $1.5-bil­lion (U.S.) in­vest­ment in Bom­bardier’s rail unit was “eq­uity-wor­thy” and hence did not con­sti­tute a coun­ter­vail­able sub­sidy un­der U.S. trade law. That con­trasts with govern­ment-con­trolled In­vestisse­ment Québec’s di­rect $1-bil­lion in­vest­ment in the C Se­ries pro­gram, a trans­ac­tion Com­merce deemed un­credit-wor­thy.

In its ini­tial trade com­plaint, Boe­ing lumped the In­vestisse­ment Québec and the Caisse trans­ac­tions to­gether, ar­gu­ing that both con­sti­tuted “sup­ply­cre­at­ing sub­si­dies” with­out which the C Se­ries would not ex­ist. “The IQ and CDPQ eq­uity in­fu­sions en­abled Bom­bardier to avoid bankruptcy and are there­fore re­spon­si­ble for the C Se­ries’ pres­ence in the mar­ket to­day,” Boe­ing said.

The nearly si­mul­ta­ne­ous tim­ing of the In­vestisse­ment Québec and Caisse in­fu­sions did cre­ate at least the ap­pear­ance of co-or­di­na­tion between the govern­ment and the Caisse. But since the Caisse in­vest­ment was made on com­mer­cial terms, the Com­merce Depart­ment agreed it was not a sub­sidy.

Still, the Bom­bardier in­vest­ment was not the first time dur­ing Mr. Sabia’s ten­ure the Caisse has had to deny charges it was do­ing the govern­ment’s bid­ding. It also found it­self in that sit­u­a­tion in 2012, when it moved to block a hos­tile takeover bid by U.S.-based Lowe’s for Quebec’s Rona hard­ware chain dur­ing a pro­vin­cial elec­tion cam­paign. The early-2016 friendly sale of Rona to Lowe’s – which earned the bene­dic­tion of the Caisse and In­vestisse­ment Québec – also gave rise to charges of govern­ment med­dling, this time in favour of the takeover, which was no longer as po­lit­i­cally sen­si­tive. The min­is­ter who over­saw IQ was forced to re­sign af­ter ini­tially deny­ing he was un­aware that IQ had de­cided to ten­der its Rona shares to Lowe’s.

The Caisse in­sists its des­ig­na­tion by the Com­merce Depart­ment as an “author­ity” of the Quebec govern­ment is much ado about noth­ing. Ac­cord­ing the Com­merce Depart­ment’s def­i­ni­tion, vir­tu­ally any pub­lic-sec­tor pen­sion fund would be con­sid­ered an arm of its re­spec­tive govern­ment. But the Caisse in­sists it acts in a man­ner con­sis­tent with that of “any rea­son­able pri­vate in­vestor.”

“The pre­lim­i­nary as­ser­tion that we are an [state] ‘author­ity’ is based on the DOC’s in­ter­pre­ta­tion of the broad cri­te­ria of the U.S. Tar­iff Act, with no con­sid­er­a­tion for our ac­tual fi­nan­cial and op­er­a­tional in­de­pen­dence from the Govern­ment of Quebec,” the Caisse says. “We do not ex­pect any as­pect of the DOC’s pre­lim­i­nary de­ci­sion to af­fect our com­mer­cial in­vest­ments in the U.S. in any way.”

Still, it is not the Caisse’s U.S. in­vest­ments that are at is­sue. The Caisse has a 55-per-cent stake in McIn­nis Ce­ment, a new $1.6-bil­lion (Cana­dian) ce­ment fac­tory on Quebec’s Gaspé Penin­sula that cur­rently risks fac­ing an un­fair­trade com­plaint by U.S. com­peti­tors. The plant launched by the Bom­bardier-Beau­doin fam­ily re­ceived $265-mil­lion from the Caisse and $350-mil­lion from In­vestisse­ment Québec. The Caisse took ma­jor­ity con­trol af­ter the project ran over­bud­get by nearly 40 per cent.

“There is not one cent of sub­si­dies in this project,” Quebec Premier Philippe Couil­lard in­sisted last month af­ter cut­ting the rib­bon at the plant along­side Bom­bardier scion Lau­rent Beau­doin.

Mr. Sabia, tellingly, was nowhere in sight.

When Quebec and Quebec na­tion­al­ism are im­por­tant, the Caisse is not go­ing to act in a man­ner that is con­trary to the po­si­tion of the Govern­ment of Quebec.

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