Where do Saga's pants come from?
After rewatching this a couple times, I believe this is just a case of censoring.

When the Cloth is put on to begin with, there is really no way there could be a single, contiguous (cyan) fabric encased within it:



As you can see, the Cloth itself is made up of multiple pieces, so it's more than likely the pants did not come from the Cloth.

If we discount the option of him, somehow, off-camera, removing the armor and placing the pants beneath, the only option is that it was added as a censor; as @user301 noted in a comment above, the lighting when the Cloth shattered did not permit a shadow in Saga's groin area (nor did the subsequent shots allow blocking it); so, in order to not have to do a black box or pixelation, the production staff opted to use a concept similar to Magic Pants, permitting Saga to have a pair of pants remaining after the Cloth itself shattered.