Caisse putting $1.5B US into Bombardier for stake in rail business

Bombardier has signed a deal that will see the Caisse de dépôt et placement du Québec (CDPQ) invest $1.5 billion US in a newly created company that will hold the company's rail transportation business.

The giant Quebec pension fund — Canada's second-largest — says the investment will help stabilize the company's current financial situation.

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The Caisse says it's betting on Bombardier and in rail transportation.

The $1.5 billion represents a 30 per cent stake in a new holding company, BT Holdco.

The company is a subsidiary of Bombardier Transportation and will be based in Germany.

The investment comes less than a month after the provincial government announced a bailout of more than $1.3 billion in the company's struggling CSeries jet program. Bombardier posted a loss of $4.9 billion US in the third quarter.

Rail industry has 'growth potential'

The Montreal-based company says the deal concludes its review of financing options for Bombardier Transportation, which sells subway cars and other mass transit systems.

"This investment by CDPQ, which has a long history as one of our major investors, is a testimonial to the growth potential of the rail industry and to Bombardier's leadership in seizing the opportunities this market offers on a global scale,'' Bombardier chief executive Alain Bellemare said in a statement.

 Caisse president Michael Sabia said the investment is a safe bet.

"Bombardier Transportation is a global leader in the rail industry, with a robust backlog, predictable revenues, and meaningful potential for growth," Sabia said in a statement. 

Karl Moore, an associate professor at McGill University, said it's a solid business deal, with more upside than Quebec's investment in Bombardier's CSeries program.

"It's a different part of the business. As Michael Sabia points out, it's a global business. It's relatively resilient during tough economic times because it's about government spending on rail companies, long-term infrastructure projects," he said in an interview with CBC's The Exchange.

He said protecting Quebec industry is less a consideration than getting good return for the pension fund that the Caisse invests.

"They've structured it in a way that they will get very good returns in a safe manner," he said.