Fri 02/04/2022 11:59 AM
Share this article:
Saipem Financial Analysis from the EMEA Core Credit team

Relevant Documents:
Saipem Medium-Term Note Program
Saipem Q3 Report
Management Changes Press Release


Italian oilfield services company Saipem’s bonds have declined further in recent days with the 2028 maturity now quoted in the mid-80s and the 2025s quoted in the low 80s. The share price has fallen to €1.19 per share from €1.94 last week.

The company issued a profit warning on Jan. 31 and said it had started talks with the bank regarding potential covenant breaches. Moody’s downgraded the company’s rating and the senior unsecured MTN program to B1 on Feb. 2

Some investors told Reorg a restructuring is unlikely since the main shareholders Eni, an Italian multinational oil and gas company with a 30% stake, and state-owned lender CDP owning a 12.5% stake, would likely be supportive. Some investors also suggested that given Saipem’s exposure to many Italian banks, it would prompt the state to intervene in a worst-case scenario.

Saipem has €500 million of bonds due April 2022 and has guided for a cash absorption in 2022, which analysts estimated to be about €500 million. In September 2023, the company will have another €500 million of notes due, and, according to some analysts, could witness further cash burn in the range of €200 million to €300 million if margins continue to be low. The company relies on its cash and may need to utilize its €1 billion RCF due 2023 to manage its working capital. This points to an overall liquidity need in the region of almost €3 billion to face its liabilities and working capital needs.

According to its third-quarter report, Saipem recorded a €25 million negative EBITDA, an improvement compared to the second quarter of 2021 (negative for €354 million). The company reported liquidity of €2 billion and a €1 billion unused revolving line, and net financial debt post-IFRS 16 as at Sept. 30, 2021, of around €1.7 billion.

The group is looking to raise €1 billion to €1.5 billion, according to press articles, and has started talks with banks regarding potential covenant breaches, as reported. The timing of the capital increase will be key as the company needs funding imminently, sources noted. Saipem has a market capitalization of €1.24 billion. Rothschild is advising the company on the capital raise at the moment, IlSole24Ore and Bloomberg reported.

Moody’s also highlighted that covenant breaches and the acceleration of some loans as a result of those breaches could trigger a cross default on other debt instruments. The notes issued under the EMTN program also have a cross-default covenant. The provisions apply if there is a default or acceleration of any other debt of the issuer, the guarantors or any material subsidiaries, subject to a €50 million threshold.

Reuters reported that Italy’s top two banks - Intesa Sanpaolo and UniCredit - are working on the package, which may include a capital increase or bridging loan. Saipem also appointed new executives driven by the main shareholders and changed its organizational structure, according to a press statement. The group is working on a strategic review, which is expected to be published on the day of the approval of the company's preliminary consolidated results.

Some distressed debt funds are monitoring Saipem’s bonds and are waiting to see if they drop further to then potentially build a position in the notes, sources said.

The company said that its full-year 2021 financial statements are expected to show a loss of more than one-third of the company’s equity. This would trigger the application of art. 2446 of the Italian Civil Code, which would require the board of directors to convene an EGM and take appropriate measures for the financial position of the company.

The company added that its review of the backlog of contracts awarded in the past indicates a significant deterioration of the full-life margins of some projects related to E&C Onshore and Offshore wind, due to the persistence of the pandemic and the current and prospective increase of the costs of raw materials and logistics.

Like other construction companies, Saipem’s contingent liabilities or performance obligations could become a problem if projects stop or are delayed. This adds pressure to stabilize the business and shore up liquidity fast as crystalizing contingent liabilities would add a lot of debt, sources said.

In its first-half report, Saipem said that it has performance obligations in the event of non-performance and payment of any damages arising from non-performance with an overall value of €71.682 billion, including work already performed and the relevant portion of the backlog of orders as of June 30.

An overview of guarantees is below:

Saipem is expected to report its full-year results on Feb. 24.

The company’s capital structure is below:































































































































































































































Saipem SpA


06/30/2021

EBITDA Multiple

(EUR in Millions)

Amount

Price

Mkt. Val.

Maturity

Rate

Yield

Book

Market


€1B Revolving Credit Facility due 2023

-


-

2023



Bank Facilities

786.0


786.0




Total Bank Debt

786.0

786.0

NM

NM

€500M Senior Unsecured Notes due 2022

500.0


500.0

Apr-2022

2.750%


€500M Senior Unsecured Notes due 2023

500.0


500.0

Sep-2023

3.750%


€500M Senior Unsecured Notes due 2025

500.0


500.0

Jan-2025

2.625%


€500M Senior Unsecured Notes due 2026

500.0


500.0

Jul-2026

3.375%


€500M Senior Unsecured Notes due 2028

500.0


500.0

Mar-2028

3.125%


Total Senior Unsecured Debt

2,500.0

2,500.0

NM

NM

Lease Liabilities

356.0


356.0




Total Lease Liabilities

356.0

356.0

NM

NM

Total Debt

3,642.0

3,642.0

NM

NM

Less: Cash and Equivalents

(1,653.0)

(1,653.0)

Net Debt

1,989.0

1,989.0

NM

NM

Plus: Market Capitalization

1,359.0

1,359.0

Enterprise Value

3,348.0

3,348.0

NM

NM

Operating Metrics

LTM Reported EBITDA

(7.0)


Liquidity

RCF Commitments

1,000.0

Plus: Cash and Equivalents

1,653.0

Total Liquidity

2,653.0

Credit Metrics

Gross Leverage

NM

Net Leverage

NM

Notes:
Capital structure is post-IFRS 16. EBITDA is the reported adjusted figure. Cash and cash equivalents is the reported balance sheet figure. Market capitalization as of Jan. 31 2022.



--Aurelia Seidlhofer, Luca Rossi
Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2024 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!