Italy, Benettons Negotiating to Break Autostrade Deadlock

(Bloomberg) -- Italy has restarted negotiations with Autostrade per l’Italia SpA to resolve a clash over the company’s lucrative highway concession, amid international pressure which puts billions of euros of infrastructure investment at risk.

Top finance and transportation ministry officials, as well as close aides of Premier Giuseppe Conte, are in talks with the Benetton family-owned Autostrade over changes to the company’s license, according to people familiar with the matter, who asked not to be named as the discussions are private. Autostrade operates more than half of Italy’s toll roads.

Autostrade and the finance ministry declined to comment. The transportation ministry and the office of the prime minister didn’t respond to a request for comment.

The dispute, which started with the collapse of a bridge in the northern city of Genoa in 2018 that killed 43 people, has spiraled into one of Conte’s biggest challenges, fueling tensions in his governing coalition and leading international funds to potentially re-evaluate their investments in Italy. The country relies on foreign funds for state-licensed sectors ranging from utilities to energy.

The Italian company denies any wrongdoing in the case. Autostrade is owned by the world’s biggest toll-road operator Atlantia SpA. The billionaire Benetton family controls the infrastructure company with a 30.3% stake.

For the Benettons, at stake is primarily Autostrade’s concession in Italy, which generates about 2.5 billion euros ($2.7 billion) in operating profit a year. Atlantia’s shares have dropped about 9% since the bridge disaster.

After the deadly Genoa collapse the anti-establishment Five Star Movement, the largest party in Parliament, called for stripping the company of its licenses. That campaign scored a success at the end of 2019, when the government approved a decree that would significantly reduces the penalties Italy would have to pay in case of revocation.

Potential Compensation

In Autostrade’s case, potential compensation would be reduced to as little as 6 billion euros from more than 20 billion euros. The decree also prevents licensees from pulling out unilaterally.

Even with a wholesale revocation off the table now, the measure is now one of the main sticking points in the talks, the people said.

Autostrade wants is the norm to be canceled and is ready to take legal action if the decree is approved by parliament. AISCAT, the toll-road operators’ association, which also represents Autostrade, strongly opposed the new rules, saying they might violate the Italian constitution.

Yet, with a final vote due by the end of February, time is running out for the government to offer a compromise on this issue. Deputy Finance Minister Antonio Misiani said in an interview that the government won’t change the measure.

A parliamentary committee on Thursday rejected amendments to change or cancel the new rules on highway concessions which are part of the government’s decree.

The dispute has caught the eye of international funds that invest in Italy. Representatives of several investors including King Street Capital, Norway’s sovereign wealth fund and TCI Fund Management Ltd met with Finance Minister Roberto Gualtieri, Transport Minister Paola De Micheli and other top officials in late January to voice their concerns, according to people familiar with the meeting.

The fund managers argued that a decision to strip Autostrade of its license, and the norm that reduce potential penalties to do so, would induce them to reprice Italy’s country risk and possibly reconsider investments in sectors that depend on a government contract or concession.

Independent Watchdog

TCI and the Norwegian fund declined to comment. King Street didn’t reply to repeated requests for comment.

Some investors in Atlantia, which controls Autostrade, have appealed to the European Union demanding a strong, swift intervention to restore respect for the rule of law and for the internal market. The European Commission said the concession decree is “a matter for the Italian authorities only,” according to an email from its press office in January.

Even as the talks continue, it’s far from clear what shape a compromise would take. Autostrade could agree to reduce tariffs and expand investments, the people said. The government is seeking to install an independent watchdog to assess the safety of the highway infrastructure.

Atlantia has also signaled it’s ready to cut its stake in Autostrade to 50% or below from the current 88% and that its open to firms such as the F2i infrastructure fund, which has public investors among its shareholders.

With the clock ticking in Parliament and investors keeping a close eye on the controversy, Conte has so far avoided taking a stance as he seeks to keep the tensions in his coalition under control.

The center-left Democratic Party and the smaller Italy Alive party founded by former premier Matteo Renzi want compromise. But any settlement will be difficult to accept for the Five Star, which is desperate for a success amid slumping popularity.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.