Spirit of Big Government Returns to Virus-Battered Italy
(Bloomberg) -- Almost three decades after Italy started privatizing many of its biggest industrial assets, Prime Minister Giuseppe Conte is strong-arming companies across the country.
The premier is seeking to restart an economy mangled by the coronavirus pandemic and in the process is pushing to toughen vetoes on foreign investments and even in some cases nationalize business with a war chest of 209 billion euros ($250 billion) in European Union loans and grants and another 100 billion euros of extra Italian borrowing.
His plans would reverse part of the legacy of former European Central Bank President Mario Draghi, who spearheaded the selloffs of the 1990s as director general of the Italian Treasury.
“Conte is following the demands of his main coalition allies, the Five Star Movement and the Democratic Party -- they both want politics to re-occupy the economy,” said Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University. “But the risk is that we scare off foreign investors at a time when we need them most.”
Here are the main flash points:
Conte has pushed for the creation of a single broadband network company, spurred by Five Star which started out as a web-based movement. The government last month temporarily halted Telecom Italia SpA’s sale of a minority stake in its network and coalition parties have endorsed a road map to let the former state monopoly create a network with state-backed lender Cassa Depositi e Prestiti SpA.
Telecom Italia on Monday finally agreed to sell 37.5% of its so-called secondary network to the infrastructure unit of investment firm KKR & Co. for 1.8 billion euros. Swisscom AG’s Fastweb SpA will hold 4.5% of the new network company. Telecom Italia also approved a memorandum of understanding with CDP, paving the way for a future merger of FiberCop with Open Fiber, Italy’s other grid company, and taking the first step toward setting up a single national grid.
CDP, already an investor in both Telecom Italia and Open Fiber, is often Conte’s vehicle for state intervention and has more than 40 billion euros available for acquisitions. It is set to buy a stake in the new broadband company and has asked for guarantees on governance. The government will draw on EU recovery funds to expand the ultra-fast network, Finance Minister Roberto Gualtieri said last week.
The state lender’s foray into the telecoms market “isn’t the new Italian road to ‘mixed capitalism,’” CDP chief Fabrizio Palermo said in an interview published Tuesday in la Repubblica. “This is ‘patient capitalism,’ which invests where development factors come into play.”
CDP, in partnership with Euronext NV, is also coveting Milan stock exchange operator Borsa Italiana, with expressions of interest due by Sept. 11. The CDP-Euronext duo has already bid for a stake in Borsa Italiana’s bond-trading platform MTS; other non-binding offers are from Deutsche Boerse AG and SIX Swiss Exchange AG, owner of the Zurich Stock Exchange.
Conte’s government may also aim for CDP to take a stake in Euronext similar to the 8% held by France’s state-controlled Caisse des Depots et Consignations, people with knowledge of the government’s strategy have said. The administration has toughened market regulator Consob’s veto powers over stake sales in the country’s stock exchange operator.
Italy has pledged to respect EU demands to sell its stake in Banca Monte Dei Paschi di Siena SpA by the end of 2021. Monte Paschi, founded in 1472, has been seeking to drastically cut its bad-loan burden as part of the plan to exit state ownership.
Monte Paschi is 68% owned by the Italian state after a government-backed recapitalization in 2017. Plans for ending state control are part of an agreement with European regulators at the time of the bailout. In June, the Siena-based lender approved a plan to transfer loans to Italian state-owned firm Amco in a complex transaction that involves spinning off a portion of assets and liabilities including a package of soured debt.
To get ECB approval for the deal, Monte Paschi must raise at least 250 million euros of funds to restore the bank’s capital requirements by selling subordinated bonds. The Finance Ministry can buy as much as 70% of the new securities, Paschi said in a statement last week.
Conte has irked some investors by pressuring the Benetton family’s Atlantia holding company into selling its 88% stake in toll-road operator Autostrade per l’Italia SpA. CDP is in line to buy part of that stake.
The government forced the Benettons to choose between losing the toll-road concession, or selling the stake, after a long tussle triggered by the 2018 collapse of a bridge in Genoa that killed 43 people. Atlantia’s board may start the spinoff process on Sept. 3.
The government is setting up a new state-controlled company to run failed carrier Alitalia SpA, a 3-billion euro rescue given added urgency by the pandemic’s impact on travel. Alitalia was already seeking help before the virus, and has cost the Italian taxpayer more than 2 billion euros so far.
Brussels though is watching.
Margrethe Vestager, the European Union’s antitrust chief, has demanded the new company shows a real break with the past, and has said the bloc will investigate Alitalia’s nationalization to establish whether the new company is indeed a new business.
The government has long been locked in fraught talks over the future of ArcelorMittal’s steel unit in Taranto in southern Italy, Europe’s largest steel plant by capacity.
Conte said in July the government was assessing possible state intervention as “the best guarantee” for the plant after his government rejected an ArcelorMittal plan that would have resulted in at least 5,000 job cuts. The plant is under extraordinary administration after ArcelorMittal announced it would hand it back to the state following the failure of an acquisition plan.
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