Brazil Opens Investigation into Sembcorp Marine’s Shipyard Subsidiary

Sembcorp Marine confirmed in a brief statement issued on March 24 in Singapore that its Brazilian subsidiary is under “investigation of alleged irregularities practices.” No further details were released on the scope of the investigation and if it is related to a nearly decade-old corruption and bribery case which involved the Brazilian oil and gas industry and many of the country’s shipbuilders.

In its statement, Sembcorp Marine reports the Office of the Comptroller General of Brazil (CGU) has published a notice in the official gazette informing of the ongoing investigation into the company’s subsidiary, Estaleiro Jurong Aracruz. They report that the CGU has initiated a preliminary administrative liability proceeding against EJA.

“The notice does not provide further facts and the company is currently unable to assess the matter or impact, if any. EJA is cooperating fully with the authorities,” Sembcorp Marine writes. Analysts in Asia however immediately warned that news of the investigation could weigh down Sembcorp Marine’s share price in the near term, but the stock appeared unaffected in trading on Monday.

Estaleiro Jurong Aracruz is Sembcorp Marine’s wholly-owned shipyard subsidiary in Brazil, located in the municipality of Aracruz. The yard commenced operations in the second half of 2014 and is capable of undertaking construction including for drillships, semi-submersible and jack-up rigs, platforms and supply vessels, and FPSO integration. It can undertake both construction or repair assignments mostly working in the oil and gas sector. 

Sembcorp Marine announced in October 2022 that it had won a $3 billion contract for a new FPSO for Petrobras, its largest single order from the Brazilian petroleum giant. The winning bid more than doubled Sembmarine's orderbook by value. In 2022, it also won a contract from Brazil’s Ministry of Defense for a research support vessel.

The company has a long history of working with Brazil’s offshore industry. Last year, Sembcorp Marine highlighted that it had delivered 13 floating production units for deployment in Brazil.

In 2019, Sembcorp Marine and Keppel Offshore both reached agreements with Sete Brasil to settle disputes stemming from 2012 contracts for submersible rigs and drillships that were to be built in connection with their Brazilian yards. Sembcorp Marine had filed an arbitration dispute in 2016.

The contracts were also included in a far reached corruption scandal in Brazil. Intermediary agents working for the shipbuilders were charged in a bribery and corruption scandal regarding the awarding of contracts from Petrobras. It is unknown whether the newly announced investigation is related to this matter.

In December 2022, before the completion of the merger of the shipbuilding assets of Keppel with Sembcorp Marine, Keppel Offshore & Marine, and the Brazilian Attorney-General and Comptroller General reached an agreement for the resolution of the case dating back to 2016 and corrupt payments made by a former agent. KOM in 2017 agreed to pay a combined total penalty of more than $422 million to resolve charges with authorities in the United States, Brazil, and Singapore, and in 2022 agreed to $65 million in fines with $53 million credited under the 2017 agreement.

Sembcorp Marine completed the acquisition of Keppel’s offshore marine operations at the end of February 2023 in a deal that valued the assets f $3.3 billion. Sembcorp Marine is reviewing the operations to develop a long-term plan for the integration focusing on the offshore sector.