Saipem's cash call wobbles as retail investors flee

By Andrea Mandala and Valentina Za

MILAN (Reuters) -Retail investors dumped the rights to buy into a 2 billion euro ($2 billion) cash call at Italian energy services group Saipem on Tuesday, heightening risks for banks that agreed to mop up any unsold shares unless institutional buyers pick up the slack.

Saipem is tapping investors in difficult markets after a shock profit downgrade in January driven by worsening margins on contracts. The capital increase runs until July 11.

Joint global coordinators BNP Paribas, Citi, Deutsche Bank, HSBC, Intesa Sanpaolo, UniCredit and joint bookrunners ABN AMRO, Banca Akros, Santander, Barclays, BPER, Goldman Sachs, SocGen and Stifel have all agreed to guarantee the issue.

The rights' price plunged 94% on Tuesday to just 1.1 euro cents, reflecting selling by retail investors on the last day in which the rights can change hands.

Given that Saipem shares trade significantly above the rights offer subscription price some investors could be betting they can purchase new stock to then sell at a higher prevailing market price once the offering is complete, according to bankers at three lenders in the consortium, who spoke on condition of anonymity.

Shares, which are down 50% year-to-date, closed down 2.8% at 2.502 euros each.

The new shares are being sold at 1.013 euros each with a ratio of 95 new shares for every single ordinary and savings share held.

Underwriters were counting on high crude oil prices, strong sector momentum as Europe strives to wean itself off Russian gas as well as Saipem's good turnaround progress to place the new shares with investors, the bankers said.

However, with markets wrestling with the impact of record inflation and rising interest rates, finding buyers for all of Saipem's new shares is proving a tall order.

"The market backdrop wasn't ideal to take on this kind of transaction, but Saipem couldn't wait," Bestinver analyst Marco Opipari said.

"The deal has not gone down well with investors and I believe a large part of the capital increase will be underwritten by the consortium of guarantor banks," he added.

Falling 6% on Tuesday, Europe's oil and gas index posted its worse drop in two years as intensifying recession concerns knocked down crude prices.

Saipem last issued new shares in 2016, raising 88% of the targeted 3.5 billion euros, which left some 500 million euros with underwriters.

Under a new plan to 2025, Saipem plans to focus on its legacy offshore engineering and construction (E&C) business as well as liquefied natural gas to tap into Europe's efforts to diversify energy sources.

The group's leading shareholder, oil and gas group Eni and state lender CDP, have pledged to buy into the cash call to keep their combined 44% stake unchanged, leaving investment banks on the hook for the rest.

($1 = 0.9714 euros)

(Additional reporting by Francesca Landini in Milan and Lucy Raitano in London; Writing by Valentina Za; editing by Keith Weir, Alexandra Hudson)