UPDATE 2-Italy's Saipem signs Iran deal as rights issue kicks off

(Recasts with Saipem statement)

MILAN, Jan 25 (Reuters) - Saipem signed a memorandum of understanding on Monday to cooperate on major oil and gas projects in Iran, as the Italian oil contractor’s giant 3.5 billion-euro ($3.79 billion) rights issue began.

The deal with Iran comes at an opportune time for the company, which has been hit hard by a prolonged oil price slump that has prompted oil majors to cut investment and seek lower prices from suppliers.

Saipem, controlled by Eni and Italian state lender fund FSI, said the MoU had been signed with the Parsian Oil & Gas Development Co and involved the revamping and upgrading of the Pars Shiraz and Tabriz refineries.

No financial details were provided.

Earlier on Monday, a source close to the matter said Saipem would announce later in the day a deal worth between $4 billion and $5 billion to build 2,000 km (1,240 miles) of pipeline in Iran.

“This would represent around 18 months’ revenue for Saipem’s onshore business and would be very welcome,” broker Canaccord Genuity said, commenting on reports Saipem could win contracts worth 5 billion euros.

The agreement, signed on the first day of the official visit to Rome of Iranian President Hassan Rouhani, came as rights in the company’s cash call started trading. Earlier this month, international sanctions were lifted on Iran following implementation of its nuclear agreement with world powers.

The 22-1 rights issue, priced at a 37 percent discount, will lead to the issue of 9.6 billion new shares, lifting the total share count to just over 10.1 billion. All the new shares are underwritten by Eni and FSI as well as the consortium of banks that managed the rights issue.

“The cash call will be extremely dilutive on the stock,” an analyst said, adding some shareholders were selling their rights while at the same time buying shares to limit their dilution.

Trading in Saipem shares, halted temporarily after a 6.7 percent jump, ended the session up 18 percent.

The oil contractor approved the rights issue as part of a turnaround plan that also included 8,800 job cuts.

In its rights issue prospectus, Saipem said it had trimmed its sales guidance for last year and might have to review its recent four-year business plan targets if oil prices remained at current low levels. ($1 = 0.9236 euros)

Reporting by Stephen Jewkes; Editing by David Goodman and Peter Cooney