It all started with a tweet.
In the modern age of social media, all it takes is one tweet to cause the breakdown of international relations between two countries. It is surreal to think of, but it is the reality we live in. That’s what Saudi Arabia and Canada discovered last August.
Now, one of the many companies stuck in the middle of this feud has suffered significantly.
SNC Lavalin stock suffered a severe blow
When Canadian Foreign Minister Chrystia Freeland wrote her tweet during August last year calling to Saudi for the release of female activists, it’s unlikely she had foreseen the aftermath.
Regardless, an engineering and construction firm like SNC Lavalin was bound to get caught in the crossfire of such a spat.
“SNC-Lavalin Group Inc. lost more than a quarter of its market value after revealing a major problem in its mining division and a weak outlook for its energy business, partly because of Canada’s diplomatic spat with Saudi Arabia,” the Globe and Mail reported on January 28.
“The feud, as well problems with the mining project and an arbitration loss in Australia, prompted the company to cut its financial guidance on Jan. 28, resulting in a drastic drop in the company’s shares,” news agency The Canadian Press reported.
At the time, SNC share value dropped from CAD 48.50 ($36.70) to CAD 35.01 ($26.49) between Friday January 25 and Monday January 28, signifying a 27.8% drop, and nearly a $2.4-billion loss in market capitalization.
Difficult conditions mounting
Neil Bruce, president and CEO of SNC-Lavalin. Image: Reuters
SNC employs some 9000 employees in the Kingdom (15% of its workforce).
Early Western media reports had incorrectly quoted Bruce saying layoffs and even a potential Saudi exit were possible.
However, SNC has denied these media reports.
According to Construction Week Online, SNC said “some media reports” had made “inaccurate statements about SNC-Lavalin withdrawing from the Kingdom of Saudi Arabia”. Citing the its history in the kingdom, SNC-Lavalin said it hoped to continue its “long-term relationship” with local stakeholders in the future.
To add to the woes in Saudi, SNC-Lavalin Group Inc. has been “criminally accused of fraud and corruption after the the Royal Canadian Mounted Police (RCMP) announced charges against the engineering giant” earlier this month, the Financial Post reported. The charges concern the company’s dealings in Libya between 2001 and 2011, when a senior executive established close ties with Saadi Gaddafi, son of dictator Muammar Gaddafi, the business news site reported.
Court documents allege the company offered bribes worth $47.7 million to public officials and allegedly defrauded various Libyan public agencies of approximately $129.8 million, the news report continued.
A murky future
While SNC has denied all charges, this hasn’t safeguarded its stock value or future prospects. S&P Global Ratings “cut SNC’s rating to BBB-, the lowest investment grade, on concern over reduced earnings prospects and the potential fallout from the corruption charges,” Bloomberg reported earlier this month.
The company has also slashed its profit outlook by more than 40%.
According to SNC CEO Neil Bruce, feedback from Saudi clients so far is that they want SNC to continue on with currently contracted work. “But our ability to secure future work is very much under review,” he said, as reported by the Globe and Mail.
Latest earnings report spells further doom and gloom
Friday February 22nd marked the release of SNC’s Q4 earnings report.
According to Reuters, “SNC Lavalin reported on Friday a CAD 1.6 billion ($909.6 million) quarterly loss and cut its dividend on Friday, as Canadian engineering firm’s oil and gas business faces intensifying trade challenges in Saudi Arabia.”
“Difficult inter-governmental relations between Canada and Saudi Arabia and unpredictable commodity prices have caused the near-term prospects of SNC’s oil and gas business to worsen,” Bruce said in a statement.
SNC had already lowered its 2018 profit outlook twice, and said that its Q4 revenue at its engineering and construction business slumped to CAD 2.49 billion ($1.88 billion) from CAD 2.87 billion ($2.17 billion) a year earlier, Reuters said.