Giant rig builders embroiled in massive Brazilian bribery charge

Both Keppel and SembMarine's order books are at risk.

Singapore’s two largest rig builders, Keppel Corporation and Sembcorp Marine, have both been dragged into a bribery scandal by a former employee of Petrobras and Sete Brasil.

According to Maybank Kim Eng, a statement by former Sete Brasil executive Pedro Barusco claimed that agents or representatives of the various shipyard contractors paid bribes to secure the rig-building contracts from Sete Brasil.

Keppel and SembMarine are among the five shipyards contracted to build 29 rigs for Sete Brasil. Keppel is building six semi-submersibles worth $6.63b (USD4.9b), while SembMarine is constructing seven drillships worth $7.58b (USD5.6b).

The bribery allegations have caused Brazil’s national development bank to postpone the disbursement of a $4.33 billion (USD3.2b) loan to Sete Brasil. The loan is a much needed lifeline to prevent its technical default and to ensure the continuity of its 29-rig project.

In separate releases to the SGX, both rig builders have slammed the bribery allegations.

“We refute allegations made in media reports on Keppel FELS’ involvement in the scandal surrounding Petrobras. We would like to emphasise that Keppel Group has a Code of Conduct which prohibits, among others, bribery and corruption. Our employees are required to conduct themselves with integrity, in an ethical and proper manner, and in compliance with the applicable laws and regulations of the countries in which we operate, including antibribery laws,” Keppel Corp stated.

Meanwhile, Sembcorp Marine reiterated that it has not made “any illegal payment” to Sete Brasil as its “policies and contracts prohibit bribery and unethical behaviour”.

Analysts warn that the bribery allegations will continue to cast a pall over the giant rig builders, whose share prices have already suffered following the rout in oil prices.

“The scandals and difficulties plaguing Petrobras are unlikely to be over soon and may continue to cast a pall over Keppel Corp and Sembcorp Marine,” OCBC analyst Low Pei Han stated in a report.

Maybank Kim Eng analyst Yeak Chee Keong warned that while Keppel and SMM are unlikely to be involved in the bribery, the rig builders’ order books could take a hit if the charge blows up into a corruption issue.

“Our key concern is if Sete Brasil would have sufficient funds to complete the rig projects. In the worst case of project cancellations, order books for Keppel and SMM may have to be written down. The vessels would also have lower resale values as each was priced close to USD800m, vs market prices of USD500- 600m due to their local-content requirements. Current rig-market weakness does not help,” he noted.