The announcement by SembCorp Marine (SCM) that its Director, Group Finance had entered into unauthorised foreign exchange transactions left more questions open than it answered. In this commentary, we infer some of the answers ourselves.

First, how did Jurong Shipyard (JSPL) pay US$83 mln to an unnamed bank for foreign exchange transactions, without anybody knowing? While it's still not entirely clear whether this payment was authorised, it seems incredible that such a payment could have been made without arousing suspicion.

Second, it follows that perhaps foreign exchange speculation was authorised, but these loss making transactions specifically were not. We need clarity on this. If, in fact, the company knew about foreign exchange transaction, but didn't specifically authorise the ones that were loss-making, the company would need to explain what it was doing speculating in the forex markets when their main job is building oil rigs. Could it be that the transactions were part of a legitimate hedging program?

Third, how is it that a special committee set up to investigate what happened consists of the people who should have been checking on this sort of thing in the first place! Namely, Chairmen and some members of the Audit and Risk Committees.

Fourth, what time frame did all of this take place in? Clearly, the longer the foreign exchange transactions had been open, the more other people should have known about them.

Fifth, the language in the press release is very interesting.
"In light of the reasonable prospect of legal proceedings and to enable SCM and JSPL to obtain legal advice with respect to possible claims, as well as any claims by JSPL in relation to the Unauthorised Transactions…"
Legal proceedings by whom, and against whom? On first glance, the company may well sue its Director, Group Finance Wee Sing Guan but on reflection, does SCM not have the intention of making good on the transactions in question, leading to claims by the banks?

While the Business Times prematurely condemmed Wee as having misled the company (I have seen neither an admission, nor a court decision to this effect), it reliably informed us of the good news that "this event is unlikely to have any impact on Jurong Shipyard's operations, saying 'it's business as usual' (oh, happy days – just like China Aviation Oil thankfully continued business while retail investors were bleeding).

Thursday, November 1 is the day when hopefully some of these pressing questions will be answered. That's the day SembCorp Marine announces Q3 earnings.

To comment on this blog, visit the Investor Central Blog.

Also watch MyStockBriefing tonight on the Investor Central website for analyst commentary on this issue.


Mark Laudi

Labels: foreign exchange transactions, Jurong Shipyard, SembCorp Marine, Wee Sing Guan