Saipem Faces Solo Slog in Low Oil Price World
Shares plunge to near 20-year lows after issue results.
A plunge in oil prices and little sign of recovery anytime soon have left Italian oil contractor Saipem ill-prepared to cope with life independent from former parent Eni, even after a 3.5 billion euro ($4 billion) fundraising.
The much-needed money is essentially in the bank, as the share sale to existing investors is underwritten by a financial consortium and core investors Eni and state fund FSI.
Saipem said on Thursday shareholders had signed up to 87.8 percent of the offering, worth 3.073 billion euros, leaving the underwriters including the consortium of Goldman Sachs, JP Morgan taking potentially unwanted stock.
However, some analysts had feared worse. "We think a 12.2 percent unsubscribed ratio can be considered a success," said Guglielmo Opipari of broker ICBPI.
Saipem shares on Friday opened higher, but then fell back to hit a new near 20-year low.
Some analysts say the plunge in the stock is a sign that, even with new funds, investors are sceptical it can thrive on its own in a struggling oil industry.
"Saipem was separated from Eni before its time... it's unprepared for independence," said Bernstein oil analyst Nicholas Green, who has an underperform rating on Saipem shares.
The future looked brighter when state-controlled Eni set in motion plans to cut loose Saipem in July 2014, with oil prices trading at around $110 per barrel.
Now they are close to 12-year lows under $30 a barrel, hit last month when Eni finally sold part of its 43 percent stake in Saipem to get 6.7 billion euros of gross debt off its own balance sheet and sever its ties.
As well as leaving Saipem to raise funds from its investors, that deal left it to negotiate bank loans to handle its new debt pile, using its own Baa3/BBB- credit rating and not Eni's A rating.
With crude prices showing little sign of recovery amid a glut of supply and weakening demand, analysts are concerned oil producers will cut back further on investments, hitting firms such as Saipem that run drilling rigs and lay pipelines.
On Wednesday, credit ratings agency Moody's (MCO) followed rival S&P in saying it could downgrade Saipem's debt to "junk," citing the risk of project cancellations and delays in an ailing sector.
A Milan banker said any downgrade could make it tougher for Saipem, which has already announced several profit warnings and hefty cost cuts, to win new business.
In its share sale prospectus, Saipem said it might have to review forecasts set last October - which included a market recovery in 2017 - if oil prices remained under pressure.
"Saipem is saving costs. It may have to save more," said Barclays (BCS) analysts, with an underweight rating on Saipem shares.
There is also concern over a set of pending legal claims proceedings, stemming in part from a corruption probe in Algeria.
Barclays estimates net outstanding claims against Saipem are around 700 million euros.
Saipem, meanwhile, has said it has had made 62 million euros of provisions against potential future litigation payments of 126.4 million euros. Under accounting rules, companies do not have to provision for claims they cannot reliably quantify.
By Stephen Jewkes and Oleg Vukmanovic
