Shares of Singapore's two largest rig builders tumbled yesterday morning after Keppel Corp said a former agent may have given bribes to get business from Brazil state oil giant Petrobras - now mired in a massive corruption probe - and its oil rig supplier Sete Brasil.
Keppel fell as much as 2.8 per cent before closing at $5.30, down 1.7 per cent. Sembcorp Marine shed as much as 3.4 per cent before ending at $1.28, down 1.9 per cent.
Keppel, which has long maintained zero tolerance towards illegal activity, told the Singapore Exchange yesterday that, after further internal probes, it recognises that certain transactions associated with its former agent Zwi Skornicki may be "suspicious". The bribes were allegedly made in connection with contracts between some Keppel entities with Petrobras and Sete Brasil.
The company said it has notified the authorities in Brazil of its intention to cooperate. When asked why it made the statement, the conglomerate said yesterday it was unable to comment further given the probe.
The about-turn comes a month after Keppel strongly denied media reports that its senior management allegedly authorised Mr Skornicki to pay bribes on its behalf.
In 2014, a former Petrobras executive had testified to the Brazilian authorities that Mr Skornicki and an agent of Sembcorp Marine forked out more than US$9.5 million (S$13 million) to Petrobras, Sete Brasil and Brazil's Workers' Party to procure contracts to build rigs.
Sete Brasil, which went bankrupt after the bribery scheme was uncovered, is the biggest customer of Keppel and SembMarine. Sete Brasil accounts for more than 40 per cent of Keppel's net order book of $8.2 billion, and about one-third of SembMarine's order book of $9.2 billion, according to UOB Kay Hian.
Some analysts say both stocks are under selling pressure as their contracts may be reviewed by Brazil's new government under President Michel Temer, who has vowed to crack down on corruption.
"The new government may review the agreements involving Skornicki, and if there's evidence of corruption, then some of the terms may not be honoured," according to the head of a local brokerage.
Any potential penalty, which could be in the millions of dollars, could further hurt the companies' bottom line, analysts say.
Both yards had made provisions in the fourth quarter of last year for their Brazilian contracts. Keppel has set aside $230 million for six rigs it had been building, and SembMarine $329 million for seven rigs.
According to Brazil's Clean Company Act, administrative fines can range from 0.1 per cent to 20 per cent of the firm's gross revenue in the prior year. The law also allows the authorities to execute leniency agreements with firms that self-report violations. These include a reduction of up to two-thirds of the fines that could have been imposed.
Meanwhile, Keppel and SembMarine are also embroiled in a lawsuit filed in the United States by some US investment funds that accused Petrobras of hiding kickback schemes, as it induced them to invest over US$221 million in Sete Brasil. They lost their investment when Sete Brasil went bankrupt.
In seeking to have the suit dismissed, Keppel, in court papers, said: "There are no substantiating allegations to show that Keppel and Petrobras shared a single objective involving fraud."
Keppel added that the suit "does not allege that Mr Skornicki was acting only for Keppel".
SembMarine, in court papers, said the US funds "failed to plead (SembMarine's) involvement with any bribery".