Investing.com -- Moody’s Ratings has upgraded the long-term corporate family rating (CFR) and the probability of default rating (PDR) of Saipem (BIT: SPMI ) S.p.A. to Ba1 from Ba2. The ratings of Saipem Finance International B.V., the financial subsidiary of Saipem, also saw an upgrade. The outlook for both entities remains positive.

The upgrade reflects Saipem’s improved operating performance, with EBITDA margins rising to approximately 9.2% in 2024, up from 8.6% in 2023 and 4.3% in 2022. This improvement, coupled with revenue growth, contributed to a reduction in the company’s Moody’s adjusted gross debt/EBITDA ratio to 2.3x by the end of 2024, down from 3.2x in the previous year. Saipem’s performance boost was backed by strong demand for its services and progress in most loss-making contracts.

In the next 12-18 months, Moody’s expects Saipem’s EBITDA margins to reach low double digits. This is anticipated due to an increasing share of work from newer contracts with a higher margin profile. However, the company’s debt/EBITDA ratio is expected to reduce only moderately towards 2.0x, as increased EBITDA and declining gross debt will be partially offset by an increase in leasing commitments. Saipem’s leasing commitments are expected to rise to €1.3 billion in 2025, up from €832 million in 2024, due to the company’s strategy to rent more equipment and vessels for its construction projects.

Saipem’s business environment remains strong, as shown by its backlog increasing to €34 billion in 2024, up from €30 billion in 2023 and €24 billion in 2022. The existing backlog covers more than 90% of the group’s revenue in 2025 and 70% in 2026, providing strong revenue visibility.

Saipem aims to achieve an investment-grade rating in the medium term. The company is committed to maintaining a minimum level of available cash of €1 billion on its balance sheet and plans to reduce its gross debt by about €650 million (excluding lease liabilities) by the end of 2027.

At the end of 2024, Saipem reported an available cash balance of €1,688 million. This, along with a fully committed and undrawn €600 million revolving credit facility maturing in February 2028, and anticipated operating free cash flow generation of about €1.1 billion in 2025, is expected to cover daily cash needs, capital expenditure of about €500 million, debt maturities of €398 million, and a dividend of €333 million for the year.

The positive outlook also incorporates the proposed merger of Saipem and Subsea7 S.A., announced in Q1 2025. If successful, the merger will double the company’s EBITDA to around €2 billion pro forma at the end of 2024 and improve its business profile, revenue, and product diversification. The merger could generate up to €300 million of cost and capital expenditures synergies.

The combined entity’s size, business profile, and improving operating performance could support an investment-grade rating if it maintains a conservative balance sheet and a track record of seamless project execution.

However, Saipem’s CFR could be downgraded if its Moody’s adjusted gross debt/EBITDA deteriorates above 3.25x, it returns to negative free cash flow generation, or its liquidity deteriorates, or the company experiences further delays or additional costs in executing its projects.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.