Italian oil major Saipem has changed its management team as it faces declining profits and dwindling ratings. Last week, credit rating agency Moody’s downgraded the group’s rating to B1, placing ratings on review for potential further downgrade after it was announced that Saipem expected to see a profit loss of more than a third of its equity in its 2021 financial statements.
Moody’s also said that it expected significant financial support would be needed from Saipem shareholders Eni and CDP – which together own more than 40% of the company – to ensure any long-term viability. The ratings group said that such a substantial profit loss increases default risk because lenders “could accelerate repayment of certain loans outstanding absent shareholder support”. The group also said that the anticipated profit decline increases the risk of weaker profitability over the next 12-18 months.
Following the downgrade, Saipem announced that it would be reorganising its board structure with a focus on reinforcing project execution and completing a strategic review. Results from this review are anticipated to be made public on the same day as its 2021 financial review.
Saipem also added representatives from its two largest shareholders to the management team, appointing Alessandro Puliti – currently general manager of the natural resources division at Eni – as general manager of the company, with Paolo Calcagnini – currently deputy general manager and chief business officer of CDP – also joining the management team. Calcagnini will reportedly be in charge of refocusing the group’s financial planning and control.
The move follows mounting pressure from the two shareholder groups for Saipem to rework its management and organisation structure, with such a move being a caveat to the groups embarking on discussions of a rescue package. Options including a capital increase of more than a billion euros and debt restructuring are being considered by the two majors to help Saipem with its profit loss.
The success of the restructuring remains to be seen, and Moody’s said in its review that it would be looking at shareholder support, execution risk of a “timely capital injection considering sizable free float” and the viability of achieving its October 2021 business plan. The potential upgrade of Saipem’s rating depends on these factors.
A solution to Saipem’s declining profit margins is expected later this month, at which time it’s due to sign off on full year results.