Saipem board adopts rescue plan with $2.2 bln capital increase in sight
The board of directors of Saipem has approved a rescue plan to strengthen the company’s financial and capital structure. As a result, Saipem will launch a capital increase of €2 billion or about $2.2 billion by the end of the year with two of its biggest investors – Eni and CDP – underwriting about 43 per cent and the rest being covered by banks.
Saipem has been experiencing financial woes, prompting it to issue a profit warning in late January 2022 following a revision of its backlog pointing to deterioration of some projects’ margins, including offshore wind, due to the protracted Covid-19 pandemic and cost increases of raw materials and logistics.
In an effort to reinforce its execution capabilities and complete the review, the Italian company in February approved a new organizational structure, setting up a new General Manager function with broad operative and managerial responsibilities.
Later that month, the company revealed details about its revised strategic plan for the period between 2022 and 2025, which was subject to approval by its board of directors.
On Thursday, Saipem’s board, chaired by Silvia Merlo, approved the 2022-25 Plan Update and the manoeuvre to strengthen the company’s financial and capital structure, i.e. the financing package.
Saipem’s board on Thursday also approved consolidated financial statements for 2021, reporting a loss of €2.467 billion.
The updated plan is based on the dynamics of Saipem’s target markets presented in October 2021 and, specifically, on growth trends in the offshore E&C and offshore drilling businesses.
The guidelines that the plan is based on include a reduction of structural costs, with a target increase for 2022 to over €150 million and over €300 million run rate in 2024, starting from the 2021 cost baseline. Efficiency actions will include the rationalization of international offices and an in-depth review of general and administrative costs as well as further process optimization.
Saipem noted that the efficiency measures implemented to date already enable annual structural cost savings run rate of approximately €80 million, while the measures to be implemented in order to achieve the 2022 savings target have already been identified.
Furthermore, Saipem’s plan entails an increased commercial focus on the acquisition of offshore operations, both E&C and drilling, marked by higher profitability and strong growth expectations.
Specifically, the target offshore E&C market is expected to grow at a CAGR 2021-25 of 8 per cent, mainly driven by the Conventional and SURF segments, particularly in the Middle East and Africa. Over the ‘22-’25 Plan horizon, the acquisition of offshore E&C projects is expected for approximately €24 billion, a target up 14 per cent from the October 2021 plan.
On the other hand, the offshore drilling market is expected to grow with a 2021-25 CAGR of 16 per cent on a global scale.
In addition, the plan includes increased selectivity in the acquisition of onshore E&C business, prioritising higher-tech projects in the LNG and gas valorisation segments, with a view to reducing risks and focusing on value generation rather than volumes.
Over the 2022-25 term, Saipem has an onshore E&C project acquisition plan of approximately €15 billion, down 14 per cent from the October 2021 plan.
Another part of the plan includes repositioning on low-risk offshore wind business in 2022-23, and adoption of a renewed commercial and execution strategy to capture market growth potential in the second half of the plan.
Saipem believes that the prospects for growth in the offshore wind market remain attractive. Therefore, in the 2022-23 period, Saipem will focus on low-risk activities, such as transportation and installation, with an expected acquisition plan of €0.8 billion, compared to the October 2021 plan of €2.4 billion.
In the second half, the company expects to accelerate acquisitions to around €2 billion, through a renewed commercial and execution strategy of EPCI in both fixed and floating installations.
Moreover, Saipem wants to play a leading role in the energy transition and in the circular economy focusing in particular on the construction of modular plants in the carbon capture chain, on plastic recycling, and on the development of subsea robotic technologies.
Financing package for Saipem
Saipem’s revision of the strategic plan lays the foundations for the package to strengthen its financial and capital structure. The goals of the financing package are re-establishing the levels of equity in line with the company’s size; reducing the level of indebtedness; re-establishing adequate cash levels over the plan timeframe; and, stabilizing Saipem’s credit rating with a view to ensuring access to debt capital markets to refinance outstanding bonds.
Therefore, the financing package is structured so that a capital increase of €2 billion is expected to be implemented by the end of the year. Saipem’s largest shareholders, Eni and CDP, are committed to underwriting a total of approximately 43 per cent of the capital increase, in proportion to their respective holdings in the company’s share capital; the remaining part of around 57 per cent is covered by a pre-underwriting agreement with primary Italian and international banks.
Saipem has signed agreements to meet its short-term liquidity needs for €1.5 billion, of which €645 million was provided by Eni and CDP by way of payment on account of the future capital increase, and for €855 million in financing by a pool of banks.
A new Revolving Credit Facility (RCF) of up to €1 billion will be arranged by the start of the capital increase and with regards to which seven banks participating in the Financing Package have confirmed that they have preliminarily approved their participation for approximately €450 million; and signature lines on a bilateral basis from banks participating in the Financing Package for an overall amount of around €1.35 billion.
Following the financing package including a capital increase of €2 billion, Saipem expects a consolidated net financial position of around €800 million at the end of 2022. Thanks to the expected development of the business and the injection of financial resources from the package, the net financial position is expected to be close to zero at the end of 2025.
The implementation of the plan is based on the new organization structured on business lines rather than on divisions, with the aim of increased efficiency, centralized risk control and development of innovative and flexible execution models, in line with the needs of the energy transition.
It is worth reminding that Saipem’s increased focus on offshore drilling has already brought results following a contract award from Aker BP for a drilling campaign offshore Norway.