A Review of the Nigerian Energy Industry

Eni ‘renews plans to sell Saipem stake’

Claudio Descalzi28 July 2014 – The new management of Italy’s Eni plans to press on with the sale of a controlling stake in oil services subsidiary Saipem so it can focus on the more lucrative business of finding oil and gas, according to a report.

Former Eni chief executive Paolo Scaroni had plans to dispose of Saipem, Reuters reported, but they were put on hold when Italian Prime Minister Matteo Renzi drafted in new management to run the state-controlled oil giant.

Saipem became a liability for Eni last year when half its market value was wiped out by two profit warnings and a damaging investigation into alleged corruption in Algeria, which also engulfed Scaroni.

With oil and gas production compromised by conflict in Libya and unrest in Nigeria, along with project delays in Kashagan and Angola, Eni also needs to sell assets to fund increasingly costly upstream investments and maintain its dividend.

“Eni’s new management is indeed ready to resume the sale of Saipem, though it first needs to cut its debt either via asset disposals or raising equity,” a source close to the matter told Reuters.

Eni has a 43% stake in Saipem and fully consolidates it on its balance sheet, including €5.5 billion of debt. But it keeps it at arm’s length and has no day-to-day influence over management because Saipem also works on some contracts awarded by Eni.

Claudio Descalzi, who took over the top spot at Eni in May, has yet to pronounce on plans for Saipem but is expected to flag his intentions at a strategy meeting next Thursday.

“Saipem has been under strategic review for a long while and Eni’s new management is willing to go ahead,” another source told the news wire.

“Options under review include a break-up of Saipem’s distribution, production and transformation operations,” the source said, adding that decisions about this might be taken in the second half of the year.

Eni did not comment.

Saipem, whose debt-to-equity ratio stands at a hefty 60% or so, borrows through Eni, whose A rating is higher than Italy’s. But people close to the matter said Eni was taking steps to get Saipem on an independent footing.

A banker who works on funding with Saipem told Reuters that Eni was already calling on lenders to negotiate debt guarantees directly with Saipem.

“They’re slowly weaning Saipem off Eni’s milk,” he said.

A break-up of Saipem would allow the firm to cut its debt pile without tapping the market for new equity, which some bankers say would have to be in the order of €2 billion to make the company appetising.

“Previously there was discussion about selling the onshore drilling business which could be worth around €1 billion and could find buyers because it’s a steady cash generator,” a banker who had been privy to Scaroni’s plans said.

He said another option the former chief executive had been toying with was the issuance of a convertible bond by Saipem.

Saipem’s onshore and offshore drilling business accounts for some 15% of the company’s revenues which in 2013 stood at about €12 billion.

Reports earlier this year said Norway’s Seadrill was interested in buying Saipem’s offshore drilling business while Subsea 7 was interested in a stake in Saipem.

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