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Keppel books first quarterly loss on Brazil bribery penalty

'Painful chapter' is over, Singaporean group says, but oil rig market remains tepid

Keppel CEO Loh Chin Hua, left, reports earnings in Singapore.

SINGAPORE -- The bribes that Keppel Corp. paid in Brazil to win offshore oil rig contracts resulted in the Singaporean state-linked conglomerate booking its first-ever quarterly net loss.

The graft case cost Keppel 619 million Singapore dollars ($473 million) in penalties and related expenses for the October-December quarter. This led to a net loss of S$495 million for the period, the first such loss since Keppel began quarterly reporting in 2003, the company told reporters Thursday. The conglomerate recorded net profit of S$143 million in the year-ago period.

For the full year ended in December, Keppel's net profit declined 72% to S$216 million.

The company made $55 million in payoffs to Brazilian government officials to win oil rig construction contracts from state oil giant Petrobras and its associate Sete Brasil between 2001 and 2014, according to U.S. prosecutors.

Keppel announced last month that its subsidiaries were to pay $422 million in fines to authorities in Brazil, the U.S. and Singapore to settle the case. Apart from the penalty, the conglomerate booked S$49 million in legal, accounting and forensics costs related to the case for the December-quarter result. Actual payment is to be made in stages by the third quarter of this year, the company said.

Keppel's management stressed that the settlement carried a one-off financial impact. CEO Loh Chin Hua told reporters that "this is not Keppel," as he spoke about the "misdeeds" in Brazil. The "painful chapter" is "behind us," he said, and "we look forward to continuing on our growth trajectory."

Yet the path for growth remains wobbly. Even discounting the penalty, net profit for the quarter would have been 13% lower than a year ago at S$124 million, as revenue fell 20% year on year to S$1.54 billion. The offshore and marine sector, once Keppel's core business, stayed unprofitable as new orders remained thin.

The offshore and marine sector booked S$81 million in loss provisions for Sete Brasil projects and S$54 million for the closure of a shipyard and impairments for associated companies. Keppel made a S$230 million provision in 2015 for Sete projects. Loh said the provision for Sete is "enough" at the moment but added that the situation is "quite fluid."

Despite growing optimism in the offshore and marine industry following the recovery of oil prices, "the rig market continues to be plagued by a supply overhang, and both utilization and day rates remain low," Loh said. "It may be some time yet" before orders for new drilling units pick up, he added. While waiting for the recovery in the rig market, the company looks to develop new businesses such as liquefied natural gas vessels.

Loh brushed aside the rumor in the market that Keppel and its rival Sembcorp Industries might consider merging their offshore and marine businesses, saying a merger "may not make sense" as the company currently sees no value in boosting capacity. Keppel has been downsizing capacity since 2015 as demand dwindled. Its global manpower has fallen from 36,000 at the peak to 16,000 now, the CEO said.

Brazil, which produces 7% of group revenue, remains an important offshore market, Keppel's managers say. "We intend to be engaged in the Brazilian market," Loh said.

Loh stressed that integrity is a core value for Keppel.

"This core value does not allow us to act unethically or illegally," he told reporters. Some former Keppel employees, including those in senior positions at the group companies, are under investigation in the scandal. These individuals have been "separated" from the company, Loh said. The company has said that current board members and management were unaware of the bribery payments.

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