IHI’s Statement on the Media Report Regarding the Investigation of Petrobras and Overview of IHI’s Business Activities in Brazil
On February 9th, an overseas media (Financial Times) reported that Estaleiro Atlântico Sul S.A. (“EAS”), in which IHI Corporation (“IHI”) has invested through the Japanese shareholders group (Special Purpose Company: JAPAN EAS INVESTMENTOS E PARTICIPAÇÕES LTDA, hereinafter, “JEI”), has been accused of a possible involvement in the corruption scandal surrounding Petrobras in Brazil.
The alleged corruption took place prior to our investment and IHI has not been involved in any way.
IHI will fully cooperate with any investigation by local authorities and has also initiated its own investigation with regards to the possible involvement of EAS in this matter.
It has come to the attention of IHI that there is some confusion amongst the market participants regarding the disclosure to date around our business activities in Brazil (investment rationale / investment structure in relation to EAS). We, therefore, would like to explain this further below.
1. Objective of Investment in EAS
IHI is focusing on LNG related businesses including storage tanks, liquefaction plants and floating oil production/ natural gas liquefaction, storage and offloading units.
In 2013, IHI made an equity investment in EAS based on the judgment at the time that Brazil possesses high economic growth potential with its abundant supply of offshore underground resources. Investment in EAS was also based on IHI’s judgment that EAS’ large supply of orders from Petrobras for drill ships and tankers would provide sufficient return on investment and business expansion opportunities in the field of facilities for offshore energy exploration and production.
2. EAS Investment Structure
EAS is owned by two Brazilian shareholders, who collectively have a 2/3 stake, and JEI with a 1/3 stake. In JEI, IHI has invested approximately ¥6.0bn and owns approximately 60%. IHI has outstanding loan guarantees in EAS of ¥22.0bn as of end of December 2014, as disclosed in IHI’s 3rd Quarter Report (“Shihanki Houkokusho”) released on February 12th.
The above figure is IHI’s portion of the loan guarantees that JEI agreed to in accordance with the shareholders’ agreement, and it is composed of approximately ¥12.0bn relating to capital expenditures and approximately ¥10.0bn relating to working capital. The ¥10.0bn increase in loan guarantees from the previous period pertains to the portion relating to working capital.
3. Coordination with EAS
To improve EAS’ manufacturing productivity, IHI is strengthening coordination with EAS and has sent technological and technical experts to EAS for instructional and educational purposes. EAS’ earnings contribution is still not sufficient, but we are making our best efforts.
At Aichi Works, which manufactures offshore floating structures, IHI has worked on the living quarter and hull block construction of drill ships (total contract amount of approximately ¥20.0bn), however, this construction has been put on hold at 40% progress rate.
With respect to IHI’s management decision going forward, IHI will decide based on a comprehensive review of the results of the investigations as well as movements in the Brazilian economy and the performance of EAS.