Will Keppel Corporation Limited And SembCorp Marine Ltd Be Hurt By The Growing Petrobras Scandal?

Petroleo Brasileiro SA, more commonly known as Petrobras, is a Brazilian state-owned oil company that’s been hogging the limelight for all the wrong reasons lately: The company’s embroiled in Brazil’s largest corruption scandal yet.

The scandal, which might involve members at the highest levels of the Brazilian government, first erupted more than a year ago in March 2014 when a former Petrobras executive was arrested for money-laundering charges and a congressional inquiry was launched in Brazil about the case.

A few months later, the Petrobras executive started testifying about corrupt practices happening between the company’s executives and Brazil’s politicians in deals that involved billions of dollars.

Now, how might this be a concern for Singaporean investors? When the scandal first broke out, the Brazilian media had already pointed out that Singapore-based rig builders Keppel Corporation Limited (SGX: BN4) and SembCorp Marine Ltd (SGX: S51) may have been involved.

Both companies have vehemently denied any involvement, but Bloomberg reported on Monday that the two firms are “sinking deeper” into the corruption scandal that’s enveloping Petrobras.

According to the Bloomberg article, a testimony that was released last Friday by a Brazilian court had pointed out that Keppel Fels Ltd and Jurong Shipyard Pte., shipyards that are owned by Keppel Corp and Sembcorp Marine, respectively, “were among a group of companies that allegedly paid bribes through intermediaries to win contracts to build 21 deep-water drilling vessels for about [US]$800 million each.”

Both Keppel Corp and SembCorp Marine have again denied this latest accusation.

But regardless of what happens next regarding the innocence of Keppel Corp and SembCorp Marine in Petrobras’ graft case, what might arguably be more important now is the high likelihood that any business deals involving Petrobras would likely be slowed down, be postponed, or cancelled, while the investigation is on-going.

Given the low price of oil currently (oil collapsed in 2014, falling from more than US$100 per barrel in the middle of the year to around US$65 today), the Petrobras scandal could not have come at a worse time for Keppel Corp and SembCorp Marine.

Both companies have yet to book any large oil-related rig or shipbuilding contracts this year. If the Petrobras scandal drags on or gets blown up to an even grander scale, the two Singapore-based rig-builders might be in for a long slump themselves.

One possible bright spot that might chase away the clouds for Keppel Corp and SembCorp Marine would be a rebound in the price of oil. If that happens, the oil and gas explorers and rig owners – the customers of Keppel Corp and Sembcorp Marine – might be enticed to restart their capital expenditure programmes.

But, given the current surplus of oil globally, I’m of the opinion that a sharp rebound in the price of oil is not a realistic expectation.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Keppel Corporation Limited.