What Investors Need To Know About Keppel Corporation Limited’s Latest Corruption-Related Fines Of US$422 Million

On 23 December 2017, conglomerate Keppel Corporation Limited (SGX: BN4) announced that its marine engineering arm, Keppel Offshore & Marine, has reached a global resolution with criminal authorities in the United States, Brazil, and Singapore regarding the investigation on corrupt payments made by a former agent of Keppel Offshore & Marine in Brazil, Zwi Skornicki.

Here’re some information that investors should know about the resolution:

1. The global resolution relates to improper payments that were made to Brazilian government officials between 2001 and 2014 in relation to Keppel Offshore & Marine’s various projects with Brazilian oil and gas giants, Petrobras and Sete Brasil.

2. As part of the resolution, Keppel Offshore & Marine will pay fines totalling US$422.2 million (or approximately S$570 million) to authorities in the US, Brazil, and Singapore.

3. Keppel Corp will continue its operations in the US and Brazil and does not expect the aforementioned fines to have any negative impact on its ability to bid for contracts in the US, Brazil, and other countries. Put another way, Keppel Corp expects a “business as usual” situation.

4. In response to the corruption issue, Keppel Corp has taken measures to enhance regulatory compliances, such as the development of an enhanced Code of Conduct, the establishment of a group-wide compliance and governance framework, the conduct of stronger training programmes for compliance issues, and more.

5. On the financial impact of the fines, Keppel Corp estimates that if the fines had been paid at the end of December 2016, its net gearing ratio would have increased from 0.565  to 0.64. The net gearing ratio is calculated by dividing Keppel Corp’s net debt (total debt minus cash and equivalents) by its total equity. So, while the fine involves a significant amount of money – US$422.2 million in total – Keppel Corp’s finances will likely not be significantly strained because of it.

6. Keppel Corp will ring-fence the financial penalty when considering its final dividend for 2017. For perspective, Keppel Corp’s final dividend for 2016 was S$0.12 per share, down from S$0.22 per share in 2015.

7. Dr Lee Boon Yang, chairman of Keppel Corp, made the following comments in the press release regarding the fines:

“Integrity is one of Keppel’s core values. We do not and will not tolerate any illegal activity in the conduct of our business. We regret and are deeply disappointed by the actions that we now know to have taken place at the Group’s offshore and marine business in Brazil from around 2001 to 2014.

Global companies such as Keppel have both a legal and moral duty to operate fully within international laws and regulations. Any perception that illegal payments can be condoned, if they are made by agents, is wrong and will not be tolerated.

Since the allegations emerged, we have moved quickly and decisively to put in place stricter controls and embedded best practices across the Group to ensure that such unacceptable behavior will not be repeated.”

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.

Editor's note: Under point six, an error in the currency unit of the final dividend for 2015 has been corrected.