Saipem to launch 2 billion euro cash call and sell assets in rescue plan

© Reuters. FILE PHOTO: A Saipem logo in seen on the bridge of the Saipem 10000 deepwater drillship in Genoa's harbour, Italy, November 19, 2015. REUTERS/Alessandro Garofalo

By Stephen Jewkes

MILAN (Reuters) - Saipem will launch a 2 billion euro ($2.2 billion) capital increase this year and sell assets to help fund a turnaround plan to bring the troubled Italian energy services group back into the black.

The company stunned investors in January when it downgraded earnings by a billion euros due to a significant deterioration of margins on contracts including offshore wind.

The downgrade came just three months after Chief Executive Francesco Caio had presented the group's business plan.

Asked about his position, Caio said he planned to continue working with his team. "We see growing momentum for energy infrastructure round the world," he said.

Controlled by energy group Eni and state lender CDP, Saipem said on Friday its two core investors and banks would advance 1.5 billion euros of the capital increase, confirming what sources told Reuters this week.

Eni and CDP, tied by a shareholder pact, will stump up 645 million euros while the banks will fund 855 million euros to help meet immediate liquidity needs.

Saipem, advised by Rothschild, expects to raise more than 1.5 billion euros from asset sales, including onshore drilling where talks with a leading international operator are advanced.

"The exclusive expires end-May... and the aim is to complete the deal this year," Managing Director Alessandro Puliti told analysts, adding the value was more than 500 million euros.

The group also intends to raise cash from sale and leaseback deals involving its fleet, he said.

NEW FOCUS

In its new plan to 2025, Saipem plans to cut costs and focus more on its legacy offshore engineering and construction (E&C) business where it expects yearly growth of 8%, especially in the Middle East and Africa.

Liquefied natural gas will be a focus for onshore business at a time when a global rush to secure more oil and gas after Russia's invasion of Ukraine is reshaping the energy market.

"Now LNG is even more important... a key element for diversification for many countries," Puliti said.

Saipem said it did not envisage the acquisition of new contracts in Russia where it has four projects under way, including the giant Arctic LNG 2 of Novatek.

"There are no outstanding payments. We will close out our commitment," Puliti said.

The energy transition will remain important but the group will rein in ambitions for the next two years by focusing on its lower-risk offshore wind business.

Saipem, a market leader in subsea E&C, has been looking to develop new lines of business to meet an increasing customer focus on green technologies, including offshore wind.

But analysts say renewable energy requires a different set of skills to guarantee the kind of returns Saipem has achieved from its traditional business.

Adjusted core earnings are expected to be more than 500 million euros this year after a loss of more than 1 billion euros in 2021 when it posted a net loss of 2.47 billion euros.

The company said it would return to cash generation between 2023 and 2024 with around 700 million euros in cash expected in 2025.

Banks will also arrange a new revolving credit facility of up to 1 billion euros by the start of the cash call and bilateral signature lines worth around 1.35 billion euros.

Global coordinators underwriting the cash call include BNP Paribas (PA:BNPP), Citi, Deutsche Bank (DE:DBKGn), HSBC, Intesa Sanpaolo (MI:ISP) and UniCredit (LON:0RLS).

Shares in Saipem, down more than 40% since the start of the year, were down 3.7% at 1425 GMT. ($1 = 0.9070 euros)