SPM Saipem Spa

Eni SpA said Wednesday it will sell a stake in its oil-services subsidiary Saipem SpA in a deal that it expects to bring in €5.4 billion ($5.9 billion) after the unit repays debt.

The Italian oil company will sell a 12.5% stake in Saipem to Fondo Strategico Italiano, an Italian state-run investment fund, for as much as €487 million, with the final price of the share sale to be determined later. Saipem will also repay Eni €6.1 billion in debt.

Eni has earmarked the proceeds for investment in its own exploration activities.

As part of the agreements, Eni plans to take up its share of a €3.5 billion capital increase at Saipem. The capital boost is scheduled to be completed in the first quarter of next year.

The move falls under Eni Chief Executive Claudio Descalzi's plan to recoup debt held by Saipem while sharpening the company's focus on oil and gas exploration. Like those of other large oil companies, Eni's results have been battered by the plunge in oil prices since the middle of last year.

In April, Standard & Poor's cut its long- and short-term credit rating on Eni, and at the start of this month it lowered its outlook on the company to negative.

The money Eni raises by selling the stake in Saipem and recouping the debt will be used to develop the company's oil and gas reserves, Mr. Descalzi said.

Eni has outperformed most of its rivals in recent years in finding new resources, including the discovery in August of a massive natural gas field off the coast of Egypt, where several competitors had given up looking.

"Ultimately this deal enables Eni to focus on upstream [exploration and production activities]," wrote Bernstein in a note to clients, adding that it provides for "one of the strongest balance sheets in the industry."

Eni, which is 30%-owned by the Italian government, said the deal will reduce its net debt by about €5.1 billion. At the end of June, its net debt stood at €16.5 billion. On Thursday, Eni will release its third-quarter results.

Saipem is trying to shore up its finances through the stock sale, as oil-services companies have also been hit hard by the fall in oil prices as oil and gas producers have slashed capital spending and rushed to cut costs.

The company, which in July said it would lay off almost a fifth of its workforce in the next two years, has lowered its profit forecasts at least three times since 2013 and Tuesday reiterated a forecast that it will lose €800 million this year.

"Today's announcement marks a turning point for Saipem: We have a new shareholder structure, a strengthened balance sheet [and] a new strategic plan" Saipem CEO Stefano Cao said. Mr. Cao is Saipem's third CEO in three years.

Saipem will refinance €3.2 billion of debt, said the Milan-based company. Up to now, Eni has funded Saipem's debt.

The deal will reduce Eni's stake in Sapiem to about 30.5%.

In early-afternoon trading in Milan, Saipem's shares were up 7.3%, while Eni's were 0.5% higher.

Write to Liam Moloney at liam.moloney@wsj.com and Eric Sylvers at eric.sylvers@wsj.com

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(END) Dow Jones Newswires

October 28, 2015 10:25 ET (14:25 GMT)

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