SNC-Lavalin Plunges Most in 20 Years on Payments Probe

SNC-Lavalin Group Inc., Canada’s largest engineering company, fell the most in at least 20 years after saying 2011 profit would be less than forecast and opening a probe into inaccurate documentation of payments by its construction unit.

An outside law firm is assisting in the inquiry after C$35 million ($35 million) of fourth-quarter outlays were found to have been tied to “projects to which they did not relate” and had to be logged as expenses, SNC-Lavalin said today.

Fourth-quarter and annual results will be filed by March 30, instead of March 2 as planned, the Montreal-based company said in a statement. Net income for 2011 will probably be 18 percent, or about C$80 million, below a previous forecast because of higher expenses at businesses including its Libyan ventures.

“This is clearly an uncertain situation,” Maxim Sytchev, an AltaCorp Capital Inc. analyst in Toronto, said in a note to investors. With the release of quarterly results “being pushed to the end of March, the stock will be in limbo.”

SNC-Lavalin plunged 21 percent to C$38.43 by 4 p.m. in Toronto, its lowest close since May 2009. The drop was the biggest since at least January 1992, based on data compiled by Bloomberg.

The internal probe centers on “the facts and circumstances” surrounding payments “that were documented to construction projects to which they did not relate,” according to the SNC-Lavalin statement.

‘Taking Steps’

“The investigation’s current findings support the company’s accounting treatment of these payments,” SNC-Lavalin said. “The board of directors is taking steps to implement changes and further appropriate actions arising from the investigation.”

Fourth-quarter results also will include about C$23 million in costs linked to “a revised position of the company’s net financial exposure on its Libyan projects,” SNC-Lavalin said.

Projects in the country accounted for about 7 percent of SNC-Lavalin’s backlog when the armed rebellion against deposed dictator Muammar Qaddafi broke out last year and all work was suspended. The Globe & Mail newspaper said last month that two SNC-Lavalin executives had ties to Qaddafi’s son, Saadi.

SNC-Lavalin is now grappling with a “tarnished” image, Neil Linsdell, an analyst at Versant Partners Inc. in Montreal, said in a note to clients. “Investors will likely wait for reports on investigations before warming up to the stock.”

Analysts’ Ratings

Linsdell cut his rating on the shares to neutral from buy. Bert Powell, an analyst at BMO Capital Markets in Toronto, reduced SNC-Lavalin to “market perform” from “outperform.” AltaCorp’s Sytchev recommends buying the stock, saying he expects SNC-Lavalin to rebound in three to six months as the company beats “materially” lower earnings projections.

Chief Executive Officer Pierre Duhaime said in May that the company was excluding all Libyan orders from its revenue backlog “as a precautionary measure” because of the revolution in the North African country. SNC-Lavalin had a backlog valued at C$9.4 billion as of Sept. 30.

On Nov. 4, SNC-Lavalin reiterated its prediction that full-year profit would be in line with 2010 earnings of about C$391.3 million, excluding some items.

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