Saipem gets the wrong end of the stick

In 2016, an Italian oilfield engineer called Saipem tried to raise €3.5bn from shareholders, failed, and left its underwriting banks holding a stick of about €400mn. No lessons were learned.

Saipem this week tried to raise another €2bn from shareholders, failed, and left its underwriting banks holding a stick of about €400mn. The shares have since slumped more than 70 per cent:

Here’s what happened. Saipem had secured commitments from Eni, Italy’s national oil company, and the state-backed investment fund CDP Industria to cover their combined 44 per cent stake in the group.

The remaining €1.12bn of its cash call was underwritten by an all-star cast of 14(!) banks: co-ordinators BNP Paribas, Citigroup, Deutsche Bank, HSBC, Intesa Sanpaolo and UniCredit, as well as bookrunners ABN AMRO, Banca Akros/BPM, Santander, Barclays, BPER, Goldman Sachs, Société Générale and Stifel.

But Saipem only sold 70 per cent of the offer in total, or 1.38bn shares, which leaves a 597mn overhang. It has since dumped 195mn shares/9.9 per cent tied to unexercised options rights at a deep discount though Euronext Milan’s auction process, so at pixel time the underwriters are on the hook for the remaining ~20 per cent. The process continues ahead of a final outcome announcement expected on Friday.

None of this is normal. Though Saipem is a known basket case following a severe profit warning in January, the rights issue had been trailed for months and wasn’t considered particularly risky given the support of Eni and CDP.

It won’t have escaped shareholders that the all-star cast of underwriters has a lot of overlap with Saipem’s lending syndicate, however. Lenders would have had little choice but to support a rescue and give Saipem’s wrecked balance sheet an equity infusion. (In that context, underwriting fees of 4.55 per cent might be seen as on the generous side of generous.)

But the average equity holder was given no obvious reason to buy into the rescue story. They could choose simply to ignore the 30 per cent theoretical ex-rights price, accept the dilution, and stop throwing good money after bad. This week’s share price performance suggests a market entirely lacking liquidity, and that they probably made a sensible decision.

Rights issues very rarely fail in this way. It happened in 2008, when shambolic attempts to rescue Bradford & Bingley left underwriters on the hook, and during peak Covid fear, when vaccine developer Bavarian Nordic overestimated investor ignorance around the science.

Is this one important? That depends. It might be that Saipem’s complicated ownership structure contributed to its stick, or that adviser Rothschild chose too high an issue price. Maybe regulatory attention around block trading is stunting the bookrunners’ ability to co-ordinate and head off these types of events.

Whichever way, amid constant noise about another eurozone debt crisis, a big question mark now hangs over investor appetite for corporate bailouts. That makes the pending €2.5bn cash call by Banca Monte dei Paschi di Siena one to watch.