TORONTO (Reuters) - Canadian officials are putting aside a bid by Quebec's Davie Yards for a contract under a C$35 billion ($37.1 billion) federal shipbuilding program until its eligibility can be determined, a senior official said on Thursday.
A Quebec court earlier allowed the sale of Davie Yards assets to a subsidiary of Upper Lakes Group (ULG). That put ULG and its consortium partners -- Canadian engineering group SNC-Lavalin and South Korea's Daewoo Shipbuilding and Marine Engineering -- in the running for one of the two contracts to overhaul the Canadian Navy and Coast Guard fleets.
Determining eligibility is not expected to delay the procurement process, said the senior official from the National Shipbuilding Procurement Strategy Secretariat.
Davie, a 200-year-old facility on the south shore of the St Lawrence River near Quebec City, has been in bankruptcy protection for more than a year. Acquisition talks with Italian shipbuilder Fincantieri broke down last week.
Three bids, including Davie's, have been received by the federal government for the shipyard contracts. The other two are from Vancouver Shipyards and from Irving Shipbuilding Inc, said the official, who confirmed that both were eligible.
Maxim Sytchev, an analyst at NCP Northland Capital Partners, said the deal was good news for SNC-Lavalin's investors.
"The company has been pretty shrewd in terms of identifying the situations where they can come in and add value on essentially a distressed asset," he said.
Shares of SNC-Lavalin rose as much as 4 percent before paring gains to close up 2.4 percent at C$56.00 on the Toronto Stock Exchange.
The procurement program is meant to revive the Canada's shipbuilding industry while modernizing its Navy and Coast Guard fleets. One yard will build combat vessels, and the other noncombat ships.
The government of the province of Quebec said on Thursday it is backing the Davie bid with an C$18.7 million loan. Jolyane Pronovost, press secretary at the Ministry of Economic Development, Innovation and Export Trade, said, however, that the loan is not contingent on Davie winning a federal contract.
The Quebec government wants to keep Davie alive, whether or not its bid wins, Pronovost said.
Quebec has not disclosed the terms of the loan, and has already provided the shipyard with about C$27 million in loans to support it, she said.
"If there wasn't any buyer for the yard, most of the C$27 million loan wouldn't have been reimbursed, and if we get any contract from the NSPS it means about a thousand direct jobs, and about 2,000 indirect jobs," Pronovost said.
Editing by Frank McGurty; editing by Peter Galloway