Privatizations Italian Style Raise Eyebrows, May Snub Investors

(Bloomberg) -- Italy’s attempt to cut its ballooning public debt with a possible year-end sale of assets to the state lender is pointing to an unclear privatization strategy that excludes potential commercial buyers.

“In this way, the government is able to raise some revenues without facing the risk of a political backlash triggered by the sale of an important asset,” said Wolfango Piccoli, senior analyst at Teneo Intelligence in London. It is a “privatization ‘all’Italiana’ aimed at removing from the state budget one entity while keeping it essentially under government control,” he added.

The Italian Treasury may cede by year’s end part of its stake in energy giant Eni SpA and its holding in air-traffic controller Enav SpA in a bid to raise about 2 billion euros ($2.3 billion) to meet its privatization targets and reduce debt, people familiar with the plan told Bloomberg on Monday.

The state-owned lender Cassa Depositi e Prestiti SpA may buy the additional Eni stake -- now valued at about 1 billion euros -- and a 53 percent stake in ENAV, said the people, who asked not to be identified because the discussions are confidential. State lender CDP, as it is commonly known, is owned 83 percent by the Italian Treasury and 16 percent by banking foundations.

The sales might help Italy to meet this year a target of revenue from state asset sales equal to about 0.2 percent of gross domestic product, or 3.4 billion euros.

Eni rose as much as 1.7 percent on Tuesday to the highest in five months, giving the company a market value of 53.6 billion euros. Enav fell as much as 1.5 percent.

Strategic Assets

“The opportunism of such a use of CDP as opposed to a sale to private investors is apparent in the light of the current market value of a company like Eni that lots of investors would be happy to buy," said Riccardo Puglisi, economics professor at the University of Pavia.

“To me that is window-dressing and revealing of a government that doesn’t want to reduce the presence of the state in the economy, implementing genuine privatizations and accepting the political consequences,” he said.

CDP’s investments in state-owned companies include 25.8 percent of Eni and 35 percent of Poste Italiane SpA, the postal company that is also one of the country’s main insurance and financial operators. The CDP group owns a total 410 billion euro. About two years ago Eni agreed to sell a stake in oil-services company Saipem SpA to a fund controlled by CDP.

Twice Revised

Italy last year failed to meet privatization targets that it said were key to reducing public debt that stands at 2.28 trillion euros, or more than 130 percent of the country’s GDP. It postponed a plan to sell a stake in the national railways company Ferrovie dello Stato as well as additional shares of Poste Italiane.

This year the government led by Prime Minister Paolo Gentiloni has twice cut its target for revenue from the sale of state assets. The goal, originally 0.4 percent of GDP, was first cut to 0.3 percent in April’s budget-planning document and then to 0.2 percent in September. The target for the three years through 2020 is of an annual 0.3 percent of GDP.

The government’s privatization strategy does not include “the information needed to assess the program’s viability and thus amounts to a risk element” for the public finances, Giuseppe Pisauro, president of the watchdog Parliamentary Budget Office told lawmakers on Tuesday.

‘Short Term’

The government’s possible “review of its Eni stake is clearly an attempt to raise money to cut in the short term the country’s public debt," said Enrico Valdani, a professor of strategic marketing at Milan’s Bocconi University. The main question is whether that’s just an accounting game or if there’s a real strategic and industrial logic behind it, he added.

In addition to the debt-cut target, “there might be other factors at play, including the need for the state to control strategic assets in the energy sector,” said Puglisi, adding that the government should decide “once for all what is the perimeter of those strategic assets.”

Last month, Italy decided to exercise so-called golden power over Telecom Italia SpA assets considered of national interest in a move aimed at reducing Vivendi SA’s influence over the country’s largest phone carrier.

--With assistance from Daniele Lepido

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net, Chiara Albanese in Rome at calbanese10@bloomberg.net, Tommaso Ebhardt in Milan at tebhardt@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Kevin Costelloe, Jerrold Colten

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