It has been a slow and painful fall from grace for once of Canada’s premier manufacturing companies. Over the past five years, Bombardier’s (TSX:BBD.B) value has been more than halved.
There were signs of a rebound in late 2018 and early 2019, but that optimism has since been wiped out.
Bombardier (TSE:BBD.B) is under investigation
Year to date, Bombardier’s stock price is down 23.15%. Yesterday, news came out that Swedish prosecutors have expanded a criminal probe into Bombardier’s Azerbaijan operations.
The allegations of criminal wrongdoing first came to light in 2017 and is directly related to Bombardiers dealings with Group 1520, a Russian rail business. Corruption allegations, including bribery, were levied against the company in relation to the Azerbaijan project.
The new investigations pertain to money laundering, which has been made possible by Switzerland’s top court which granted access to the banking records of nine Swiss bank accounts associated with shell companies controlled by four key Russian figures.
Why is Bombardier involved?
It partnered with these Russian businessmen and Group 1520 on the project.
The shell companies are being targeted “for corruption offences and money laundering in connection with a tendering process of the state railway company in Azerbaijan.”
Thus far, one Swedish Bombardier junior executive has been acquitted of bribery charges. However, that decision is being appealed by Sweden’s National Anti-Corruption Unit and two more local Bombardier executives are expected to be indicted.
Although the employees have since left Bombardier Transportation Sweden, in February Laurent Troger, president of Bombardier Transportation in Berlin abruptly resigned.
Outside of criminal investigations, the World Bank is also conducting an audit on the Azerbaijan project. It is worth noting that the World Bank put forth 85% of the funding for the project and preliminary findings show that Bombardier won the contract via “collusive, corrupt, fraudulent and obstructive practices”.
This could affect Bombardiers future bidding
It is worth noting that should Bombardier be found to have won the contract in such a manner, it could be banned from bidding on any World Bank contracts. Considering the World Bank subsidizes much of the infrastructure construction in the developing world, it could be a major blow to the company.
Sound familiar? It sounds eerily familiar to legal issues that SNC Lavalin (TSX:SNC) currently find themselves in. Legal repercussions aside, it has been a big hit to the company’s brand and has impacted its ability to win contracts.
It’s a story that Bombardier wants to put behind them. It’s a story that investors will want to pay close attention to. Bombardier is already facing significant headwinds and has a history of poor execution. It is for this reason its stock price is mired in a multi-year downtrend.
A legal battle on corruption and money laundering charges adds another level of risk to the company. At this point, there is no compelling reason to pick up Bombardier shares. The risk simply isn’t worth the reward.