Can a Bribery Probe Derail Bombardier Inc. (TSX:BBD.B)?

An investigation into Bombardier Inc.’s (TSX:BBD.B) $1.2 billion locomotive deal with South Africa’s Transnet might be enough to stop its momentum.

| More on:
The Motley Fool

When I last wrote about Bombardier Inc. (TSX:BBD.B) in April, there were plenty of signs that the stock would continue its impressive run. Did it?

Yep, its stock has risen almost 22% since! Year-to-date, the company has posted outstanding returns of 64% hitting 52-week highs. Bombardier had plenty of momentum in the first half of 2016. Why?

After years of delays on its maligned C-Series project, government buyouts and plenty of negative press coverage, sentiment began to change. With a new CEO at the helm and a renewed focus on cash flow, there was reason for optimism. Analysts also bought in and as of last count, 13 rated the stock a buy!

How many rated the company a sell? None. That alone should tell you how far Bombardier has come.

Unfortunately, Bombardier is now in the news for all the wrong reasons. According to recent reports, Bombardier’s US$1.2 billion dollar contract with South Africa’s Transnet is being probed for potential bribery. This wouldn’t be the first time a prominent Canadian firm was embroiled in such controversy. SNC-Lavalin Group Inc. has faced a string of fraud and bribery claims, and it’s has taken over three years for the company to shed its negative image and for its share price to recover.

Will the latest probe stop Bombardier’s momentum in its tracks?

The details

The probe centers around a 5$ billion locomotive project, the largest in South Africa’s history. The contract, awarded in 2014, was split between Bombardier, General Electric Company, China North Rail and China South Rail. At the center of the controversy are the Guptas brothers, who are linked to one of South Africa’s biggest corruption scandal. In fact, the brothers have warrants out for their arrest and had significant influence at Transnet.

How does this tie-in to Bombardier? In 2015, Bombardier received a $US450 million loan from Export Development Canada (EDC) to finance its $1.2 billion deal. A couple of weeks before the Transnet deal, the Guptas received U$41 million in financing from the EDC to buy a luxury jet from Bombardier. Suspicious? When there’s smoke, there’s fire.

Questionable payments

And if that isn’t enough, there’s a significant reason for concerns around questionable payments to Bombardier. For starters, the company has received 38% (US$450 million) in advance payments on the project. The contract only authorized 27% in advancements. Almost five years after the initial contract, Bombardier has only delivered 13 out of the 240 locomotives under contract. Wouldn’t you be concerned?

Likewise, Transnet paid Bombardier and China North Rail $60 million each to relocate their locomotive assembly facilities to Durban. The payment was not verified, nor was it approved by Transnet’s auditors. At issue is the fact that an earlier report by China North Rail pegged the relocation would cost less than $1 million. Last year, a Transnet auditor found significant red flags with the payments for relocation.

Potential impact

It’s important to note that no charges have been laid against the company. However, the news can potentially derail Bombardier’s stock price. The South African law firm who is conducting the investigation has suggested the government should suspend the contracts.

Bombardier is still owed approximately $750 million under the terms of the contract, and a suspension would impact the company’s top line. More important, however, is the company’s reputation is at stake.

It has worked hard to successfully improve its image. Being linked to bribery charges is not good and can negatively impact future contracts. Stay tuned!

Should you invest $1,000 in Crowdstrike right now?

Before you buy stock in Crowdstrike, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Crowdstrike wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien has no position in any of the companies listed.   

More on Investing

shoppers in an indoor mall
Dividend Stocks

6.2% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

This dividend yield may not be double digit, but it's far safer than many others out there.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

1 Magnificent TSX Value Stock Down 28% I’m Buying With Confidence

goeasy is a rare combination of value, income, and growth worth considering today for high-risk, long-term investors.

Read more »

Person uses a tablet in a blurred warehouse as background
Tech Stocks

My Top 2 TSX Tech Stocks: Smart Bets for Canadian Technology Exposure

Here's why Kinaxis (TSX:KXS) and Shopify (TSX:SHOP) remain two of my top TSX tech stock picks in this current market,…

Read more »

Trans Alaska Pipeline with Autumn Colors
Dividend Stocks

This Canadian Pipeline Paying 5.5% is My Top Pick for Income Investors

Pembina Pipeline stock’s 5.5% yield, strong contracts, and minimal tariff impact make it a top pick for income investors seeking…

Read more »

customer uses bank ATM
Stocks for Beginners

How to Approach CIBC Stock in 2025

CIBC stock is one of the best banks out there, and yet it doesn't really get the attention it deserves.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

I’d Put $7,000 in This Reliable Monthly Dividend Payer – Immediately

The following three monthly paying dividend stocks can deliver a reliable passive income.

Read more »

stocks climbing green bull market
Top TSX Stocks

Where I’d Invest $13,000 in the TSX Today

TSX stocks that are benefitting from strong fundamentals and offer investors good entry points today include Enbridge and Aecon.

Read more »

Happy shoppers look at a cellphone.
Dividend Stocks

The Only TSX Stock I’d Buy and Hold for the Next 20 Years

This TSX stock offers growth potential, consistent income, and solid value. These characteristics will result in above-average returns.

Read more »