November 19, 2015 / 11:21 AM / 2 years ago

Quebec pension fund to buy stake in Bombardier rail arm for $1.5 billion

MONTREAL/TORONTO (Reuters) - Quebec’s public pension fund manager will buy a 30 percent stake in Bombardier Inc’s (BBDb.TO) rail business for $1.5 billion in the troubled company’s latest bid to provide a bigger cash cushion for its troubled planemaking unit.

The infusion from the Caisse de depot et placement du Quebec (CDPQ) is the second financing deal Bombardier has struck in recent weeks, as it makes a final push toward the launch of its long-delayed CSeries jet program.

After the latest deal closes in the first quarter of 2016, the unit that makes passenger railcars and locomotives will be governed by a seven-member board, with three nominees being named by Caisse, the companies said on Thursday.

The Caisse, which has had concerns in the past with the grip the Bombardier-Beaudoin family have over the parent company with their super-voting shares, also extracted some other commitments as part of the deal, including assurances around the maintenance of specific cash reserve levels.

“It’s structured almost like a private equity investment, as opposed to a pure long-term equity investment,” said AltaCorp analyst Chris Murray. “It has got protections in there that are interesting.”

The fund also won the right to vet new independent directors named to the parent company’s board, but in an interview Caisse Chief Executive Michael Sabia said it would not aim for direct board representation but rather push for qualified outsiders.

“What we want, and I think what Bombardier wants, are solid directors with experience and a performance focus. They’re going to take that company forward, they are going to build a culture that needs to be built,” he said. “That’s good for everybody.”

The fund is also receiving 105.85 million warrants that are convertible to the company’s more widely held Class B shares and would give it a further 4.5 percent equity stake in the parent.

“The deal is complex in structure and CDPQ has in our view, exercised a large degree of caution in crafting the structure of the deal,” said Scotiabank analyst Turan Quettawala, in a note.

Shares in Bombardier closed flat at C$1.28 on the TSX on Thursday.

SEEKING MORE HELP

Last month, the Quebec government agreed to put $1 billion into the CSeries program for a nearly 50 percent stake in the project. The narrow-body CSeries is set to begin service in 2016, but the program is years behind schedule and billions of dollars over budget.

Despite the recent deals, Bombardier is still seeking more help and is in talks with the Canadian federal government about a further investment in the CSeries.

“Bombardier will have sufficient cash resources to complete the CSeries development and support losses during the ramp-up production phase,” National Bank analyst Cameron Doerksen said in a note to clients.

On a conference call on Thursday, Bombardier’s CEO Alain Bellemare said the recent cash infusions will take the company’s liquidity to about $6.5 billion on a proforma basis at the end of this year.

The Caisse deal puts an end in the near term to Bombardier’s alternative plan to list a part of the rail business in Europe.

($1 = 1.3268 Canadian dollars)

Additional reporting by Amrutha Gayathri and Sneha Banerjee in Bengaluru; Editing by Jeffrey Benkoe and Christian Plumb

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