Goldman Sachs and JP Morgan face stock headache after Saipem share issue

Investment banks Goldman Sachs and JP Morgan could be left with large stakes in Italian oil services company Saipem following the completion of a €3.5bn (£2.7bn) share issue.

Saipem launched the issue, which it hopes will give it a stronger financial structure, on 21 January at 37% lower than the then traded price in the company’s shares.

But, with markets fearful of prospects for companies involved in the oil sector, its shares have fallen below the price of the new shares being issued, making it less likely that rights holders will subscribe for the new shares being issued in the deal. On Wednesday the shares were trading at €0.36 compared with an issue price of €0.362.

JP Morgan and Goldman Sachs, the joint global coordinators and joint bookrunners of the issue, are understood to face the possibility of being left with some of the unwanted stock, with some of it sub-underwritten by other banks and institutions. Neither bank would comment before the closure of the deal on Thursday.

“The whole deal is on a knife edge,” said one senior investment banking source. He added that the demand for the deal had been diminished by the volatile and falling oil price, which was creating nervousness in markets as a whole.

Banks can often be left with large unwanted shareholdings in the companies they advise if investors shun share issues. In 2013, Barclays ended up with a 14.4% stake in Ziggo after being unable to find buyers for the cable group’s shares.

Oil services providers in Europe have been forced to sell new shares at significant discounts as a plunge in oil prices curbs demand for exploration and field development.

CGG SA, a French provider of seismic surveys, has just sold €350m of new shares to finance its turnaround plan at a 72% discount.

In the prospectus for its upcoming deal, Saipem said that owing to a slowdown in work in Venezuela in the final quarter, 2015 revenues were now expected to be as low as €11bn, compared with a previous estimate of about €12bn.

While it remained on track to meet its other 2015 targets, there was a risk results could be worse than expected, while a significant update to 2016 estimates might also be needed, it said.

The company said its 2016-2019 plan had been based on an oil price that went from $55 a barrel in 2016 to $80 in 2019. Prices are currently hovering just above $30 a barrel.

“If the price of oil stays at present levels for another three to four months and there is a marked drop in the order portfolio the company will have to acknowledge the further worsening of market prospects and so draw up an updated business plan,” Saipem said.

The company, controlled by oil major Eni and state lender fund FSI, has seen about €14bn wiped off its balance sheet in three years, after a corruption investigation in Algeria, two profit warnings and a glum business outlook.

Powered by article was written by David Hellier, for on Wednesday 10th February 2016 16.55 Europe/ © Guardian News and Media Limited 2010


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