Ottawa’s promised changes to federal integrity rules gives SNC Lavalin a boost

Things are looking less sour for graft-tainted engineering giant SNC-Lavalin, which received a boost Monday when an analyst upgraded his rating and price estimate for the company’s stock following changes to the federal government’s procurement policy, announced in last week’s budget.

In last week’s budget, moves to reform federal corruption rules, signalled by the Conservative government, are expected to spare embattled engineering and construction firm SNC-Lavalin from derailment by recent legal woes.

Prompted by the government’s announcement that it planned to restructure its so-called integrity framework, which automatically imposes a 10-year debarment on companies convicted of bribery or corruption of public officials, an analyst upgraded his rating for the company from a “sector perform” rating to an “outperform” rating in a research note issued on Monday.

The Canadian Press reports:

Analyst Chris Murray of AltaCorp Capital said Monday his new target price for SNC shares is $51, up from the previous estimate of $43.

Murray says the tone of the budget acknowledges that the current system results in unintended consequences for companies like SNC-Lavalin, which has overhauled its ethics practices.

Reporting on the government’s planned changes, the Huffington Post writes:

The Conservative government said it would introduce a new integrity regime for procurements that is “consistent with best practices in Canada and abroad.”

It wasn’t immediately clear when the government plans to make the changes. Public Works spokesman Pierre Alain Bujold said the department has been consulting with industry associations and has hired two third-party experts in procurement ethics before deciding on how to proceed.

A 10-year debarment would have likely forced SNC-Lavalin into a significant restructuring, possibly including a creditor protection filing, he said.

SNC-Lavalin has said it will plead not guilty to the one fraud and one corruption charge filed in February by the RCMP against the Montreal-based company and two of its subsidiaries over dealings in Libya.

Maxim Sytchev of Dundee Capital Markets said the planned procurement change confirms his belief that there was a low risk that the government would derail Canada’s largest engineering and construction firm.

SNC-Lavalin declined to comment on the government’s intentions, saying it will “abide” by a new federal procurement regime.

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