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Sabia's Caisse can't shake questions of independence

Michael Sabia could have done without being dragged into the bitter Bombardier-Boeing trade dispute that has Caisse de dépôt et placement du Québec once again fending off charges that it bows to the wishes of the Quebec government of the day.

Since Mr. Sabia took over at the Caisse in 2009, he rarely misses an opportunity to insist there's a new sheriff in town and that the provincial pension manager he runs takes orders from no one. He stiffly points out that the Caisse is legally independent from the government. And the institution's first non-Quebec-born chief bristles at being taken for a political lackey.

To be fair, Mr. Sabia's track record indeed suggests the once symbiotic relationship between the Caisse, Quebec Inc. and the provincial government is a thing of the past. The days when the Caisse intervened willy-nilly to favour Quebec-based companies are long over.

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Still, the Caisse remains unique among Canadian institutional investors in that it has a dual mandate, entrenched in law, to achieve an optimal return on capital "while at the same time contributing to Quebec's economic development." It is that latter clause, underlined in the U.S. Department of Commerce preliminary decision slapping countervailing duties on Bombardier's C Series aircraft, that continues to raise doubts about the Caisse on Bay Street and beyond.

"The people who will speak candidly will continue to be very skeptical of the Caisse's independence," one veteran corporate lawyer on Bay Street offers. "Sometimes, it doesn't matter. But when Quebec and Quebec nationalism are important, the Caisse is not going to act in a manner that is contrary to the position of the Government of Quebec."

Although the Commerce Department deemed the Caisse a "mandatary of the state," it concluded that the pension-fund manager's $1.5-billion (U.S.) investment in Bombardier's rail unit was "equity-worthy" and hence did not constitute a countervailable subsidy under U.S. trade law. That contrasts with government-controlled Investissement Québec's direct $1-billion investment in the C Series program, a transaction Commerce deemed uncredit-worthy.

In its initial trade complaint, Boeing lumped the Investissement Québec and the Caisse transactions together, arguing that both constituted "supply-creating subsidies" without which the C Series would not exist. "The IQ and CDPQ equity infusions enabled Bombardier to avoid bankruptcy and are therefore responsible for the C Series' presence in the market today," Boeing said.

The nearly simultaneous timing of the Investissement Québec and Caisse infusions did create at least the appearance of co-ordination between the government and the Caisse. But since the Caisse investment was made on commercial terms, the Commerce Department agreed it was not a subsidy.

Still, the Bombardier investment was not the first time during Mr. Sabia's tenure the Caisse has had to deny charges it was doing the government's bidding. It also found itself in that situation in 2012, when it moved to block a hostile takeover bid by U.S.-based Lowe's for Quebec's Rona hardware chain during a provincial election campaign. The early-2016 friendly sale of Rona to Lowe's – which earned the benediction of the Caisse and Investissement Québec – also gave rise to charges of government meddling, this time in favour of the takeover, which was no longer as politically sensitive. The minister who oversaw IQ was forced to resign after initially denying he was aware that IQ had decided to tender its Rona shares to Lowe's.

The Caisse insists its designation by the Commerce Department as an "authority" of the Quebec government is much ado about nothing. According to the Commerce Department's definition, virtually any public-sector pension fund would be considered an arm of its respective government. But the Caisse insists it acts in a manner consistent with that of "any reasonable private investor."

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"The preliminary assertion that we are an [state] 'authority' is based on the DOC's interpretation of the broad criteria of the U.S. Tariff Act, with no consideration for our actual financial and operational independence from the Government of Quebec," the Caisse says. "We do not expect any aspect of the DOC's preliminary decision to affect our commercial investments in the U.S. in any way."

Still, it is not the Caisse's U.S. investments that are at issue. The Caisse has a 55-per-cent stake in McInnis Cement, a new $1.6-billion (Canadian) cement factory on Quebec's Gaspé Peninsula that currently risks facing an unfair-trade complaint by U.S. competitors. The plant launched by the Bombardier-Beaudoin family received $265-million from the Caisse and $350-million from Investissement Québec. The Caisse took majority control after the project ran overbudget by nearly 40 per cent.

"There is not one cent of subsidies in this project," Quebec Premier Philippe Couillard insisted last month after cutting the ribbon at the plant alongside Bombardier scion Laurent Beaudoin.

Mr. Sabia, tellingly, was nowhere in sight.

A look at the latest U.S. duties on Bombardier jet exports (The Canadian Press)
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About the Author

Columnist Konrad Yakabuski writes on politics, policy and business for The Globe and Mail’s Comment section and Report on Business. More

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