Saipem, which is 43%-owned by Italian explorer Eni, warned after markets closed on Friday that it now expected to make a net loss of €300 million ($400 million) to €350 million this year instead of a profit of €450 million.
The Milanese company pointed to “a significant deterioration in our commercial position in Algeria” in which relations with state player Sonatrach have broken down.
Saipem said it expected the Algerian outfit to initiate legal proceedings for damages in projects including the MLE plant, GK3 pipeline and the Arzew LNG development.
The services giant also cited “operating issues… in relation to two onshore contracts in an advanced stage of execution in Mexico and Canada” that were set to cost it €260 million.
Saipem is at the centre of corruption probes in Italy and in Algeria relating to large contracts it entered into with Sonatrach, a long-standing business partner.
In January, the Milan-based contractor surprised the market with a profit warning in January which it blamed on weakening contract margins.
The second surprise on Friday angered the market, Reuters reported, with Credit Suisse slashing its share price target for the company and warning “there is no investment case” in a note to clients.
“We believe Saipem will be uninvestible until major unknowns are clarified … We expect the shares will remain dead money and will underperform the sector,” the note said.
Analsys at Morgan Stanley said that “Saipem’s second-profit warning in six months increases the uncertainty, in our view, regarding the pace of earnings rebound and the likelihood of negative surprises”.
Shares in Saipem were trading at €15.58 at 0834 GMT, down 22.9% from the close on Friday. The company has lost more than 50% of its equity value since the start of 2013.
Eni’s share price fell 2.5% to €16.42, as the oil and gas group could lose €140 million if Saipem were not able to distribute a dividend in 2013, traders told the wire service.
“Many investors got back into Saipem after the first profit warning, thinking the worst was over, but they were burnt again this time around,” a Milan-based trader said.
Saipem’s former chief executive Pietro Franco Tali was ousted in December when news of the Algerian probe first emerged.
One month later the new management triggered a 34% drop in its share price in a single day by slashing its profit forecast for 2013.
In April, at the behest of Italy’s Consob market regulator, auditors of Saipem said they had found failings in the internal control system.
Saipem has since said it is taking a more conservative approach in setting targets.
Now run by new chief executive officer Unberto Vergine, the company also strove to emphasise in Friday’s warning that it still expected a strong recovery in profits in 2014 and thereafter.