Stephen Jewkes and Andrea Mandala

MILAN (Reuters), -Saipem core shareholders Eni and CDP, along with a group of banks, are prepared to lend 1.5 billion euros to finance a capital increase of 2 billion Euros to save the struggling Italian energy service company, according to two sources.

According to one source, the shareholders pact will tie the investors together and they will each contribute over 600 million euros in advance.

Eni will also temporarily guarantee the loan from a group of eight banks for 855 million euros (or $941 million) while it owns 30% of Saipem.

Two sources indicated that SACE, a state-owned insurer of trade credit, is expected to take over the guaranteeing role for the bridge loan once it has processed complex paperwork.

Dario Scannapieco, chief executive of CDP, stated Wednesday that he is confident in finding the solution for Saipem.

Saipem shares have dropped more than 40% from the beginning of the year. However, they were 7.4% higher in late trading.

Saipem shocked investors when in January it downgraded its earnings by one billion euros due to significant margin deterioration on certain contracts. This sent the shares plummeting.

After falling into debt last year, it announced that in February it would reduce costs, sell assets, and focus on its core business of oil and gas.

On Friday, it will unveil its rescue plan and turnaround plan.

BOARD MEETINGS

Sources claimed that conditions are not favorable for capital growth at this time due to volatility in the market after Russia’s invasion. They also suggested it might be possible to launch after the summer.

According to one source, the consortium that is responsible for the capital rise will likely include the banks that provided the bridge loan. These loans will need repayment when cash calls are launched.

According to sources, the banks are concerned that they may take on too much risk so they seek guarantees.

According to sources, Eni’s and CDP’s boards will be meeting later Wednesday in order to approve the package. This package will then go to the Saipem Board for discussion on Thursday.

Eni and Saipem did not respond to our request for comment.

Sources claim that part of 1.5 billion euro will be used by Saipem to fund a 500m Euro bond due to mature in early April.

According to a source, Saipem’s bond portfolio of four bonds worth 2 billion euros won’t be refinanced but it will be permitted to run until 2023-2028.

One source said that a revolving credit facility of 1 billion euro, due to expire in 2023 at the latest, might be extinguished before the deadline and could be replaced by a line of identical three-year maturities.

The source stated that the matter was not yet resolved.($1 = 0.9091 euros)