Sembcorp Marine (SGX: S51) shares are down 7% in Singapore today as news arrived of a Brazilian investigation into “alleged irregularities”. Sembcorp was also the top volume stock on the exchange - this is not some minor movement in a microcap stock. What matters here is not the specifics, at least not so much, of the actual allegations. It's what they reveal about the company as a whole. Or potentially reveal that is. Is this some minor issue in one, far flung part, of the company. Or is this revelatory of the general culture of the company? If the second then this is only the start of the rot - if the first then we could expect the share price to recover in time.
But that's all an if of course - what are the actual allegations? Which is where our problem comes in. Because there's no detail about what they are. Just that a Brazilian investigation into such irregularities has started: “CGU has initiated a preliminary administrative liability proceeding against the company's subsidiary, Estaleiro Jurong Aracruz Ltda (EJA) for the investigation of alleged irregularities practiced by EJA .” That's not hugely informative for any of us.
Sembcorp Marine share price from SGX
We can, of course, have a guess as to what this is about. Sembcorp has contracts with the Brazilian Navy for work on a research support vessel. We would, of course, be all Captain Renault, shocked, shocked, to find that there could be corruption or irregularities in a state contract in a Latin American country. But in today's business environment we can't be quite so blase about the funny ways of foreigners.
We are in a world where companies at least nominally adhering to western business standards are expected to adhere to western business standards. So, what we find is that when allegations of “irregularities” are made they're taken seriously. Further, they're not - not usually - taken to be some small error in a far off subsidiary but as evidence of something going wrong at head office. That's just the way the modern world works.
Of course, nothing is proven and there's no even detail about the irregularities. But despite research support ships being a small part of the Sembcorp business, despite Brazil being a small part of it, further revelations could do further serious damage to the share price.