Saipem Shares Slide Before Rights Pricing

Saipem shares came under pressure on Thursday as the oil contractor geared up to price a giant rights issue that is widely expected to be sold at a steep discount to woo investors spooked by sliding oil prices.

"They couldn't have chosen a worse moment to launch the recapitalisation," ICBPI analyst Guglielmo Marco Opipari said.

Saipem, controlled by oil major Eni, approved last year a 3.5 billion euro ($3.8 billion) cash call as part of a four-year turnaround plan aimed at ensuring its survival.

The contractor, which has a market capitalisation of 2.5 billion euros, will hold a board meeting on Thursday afternoon to price the issue that is due to start Monday.

"Given the scenario a discount of at least 40 percent will most likely be needed. The share still has a way to fall yet, I'm afraid," said Bernstein analyst Nicholas Green.

Saipem shares, which have dropped 32 percent since the start of the year, were halted from trade at 1140 GMT, indicated down 8.7 percent at 5.13 euros.

Oil service companies around the world have suffered from falling crude prices which have prompted oil producers to cut spending and seek lower prices from their suppliers.

Saipem, a market leader in subsea work including the world's most expensive oil field Kashagan, is targeting cost cuts of 1.5 billion euros and job cuts of 8,800 to help it lift profit margins.

An analyst who asked not to be named said that banks in the underwriting consortium were selling Saipem shares short to hedge against the risk of finding themselves with too much stock on their hands.

"Some of them are selling since they could find themselves enormously long," the analyst said.

State-controlled Eni agreed last year to sell about 12.5 percent of its Saipem stake to state-owned investment fund Fondo Strategico Italiano (FSI).

That deal, in conjunction with a shareholder pact with FSI, will see Eni relinquish its control of the oil contractor once the deal is finalised.

Reporting by Stephen Jewkes