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Nikkei Markets

Sembcorp Marine shares plunge as Brazil scandal resurfaces

Investigations linked to massive corruption probe code-named Operation Car Wash

Should Sembcorp Marine be fined, its finances could face further pressure, analysts said.   © Reuters

SINGAPORE (Nikkei Markets) -- Shares of Sembcorp Marine plunged after the rig builder said Brazilian authorities had searched its premises, renewing concerns it could be hit with hefty fines in connection with a graft probe.

The search related to investigations of Guilherme Esteves de Jesus, a former consultant engaged by its Brazilian unit Estaleiro Jurong Aracruz, and of Martin Cheah Kok Choon, EJA's former president, the company said.

De Jesus has been arrested by the Brazilian Federal Police and is currently facing criminal charges. While the rig builder had disclosed those charges earlier, Wednesday's statement is the first to directly implicate an employee of the Singapore company.

Sembcorp Marine said it has cooperated fully with the police and provided materials within the scope of the warrant.

Around 3 p.m. Singapore time, the stock was down 9.1% from Tuesday's close while that of Sembcorp Industries, its major shareholder, was 2.4% lower.

Both Sembcorp Marine and its local rival Keppel Offshore & Marine, which is part of listed Keppel Corp, have been caught up in the massive corruption case code-named Operation Car Wash that has involved illegal payments to politicians and bribes to get contracts at inflated prices. The payments were linked to the embezzlement of billions of dollars from Brazil national oil company Petrobras and other state-owned firms.

The investigations, which began some five years ago, have already implicated hundreds of politicians and corporate executives, including former Brazilian president Luiz Inácio Lula da Silva who was convicted and jailed for graft.

According to earlier media reports, Sembcorp Marine clinched some $5.5 billion worth of contracts from Sete Brasil, a company that was set up to provide rigs and other offshore services to Petrobras. Keppel O&M has won a similar amount of contracts from Sete Brasil and Petrobras, the reports said.

Keppel O&M has already been fined $422 million. Brazilian prosecutors have also charged two former executives of commodities trading giant Trafigura with corruption, and investigations targeting other large companies such as Vitol and Glencore are ongoing.

Should Sembcorp Marine be fined, its finances could face further pressure, analysts said. OCBC Investment Research advised investors to wait for clarity on the Brazil issue before taking a position.

Sembcorp Marine has been struggling to reduce its debts amid weak demand for offshore services. Just last month, it borrowed S$2 billion ($1.48 billion) from Sembcorp Industries in the form of a five-year subordinated loan to retire some S$1.5 billion worth of borrowings.

--Kevin Lim

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