Italy launches big privatisation push

January 26, 2014 6:03 pm

Italy launches big privatisation push

By Guy Dinmore in Rome and Rachel Sanderson in Milan

Italy’s coalition government has embarked on what it calls its largest privatisation programme since the late 1990s with a plan to raise €12bn, but questions are already being raised over the value of state-owned companies to be put on the block and why only minority stakes are to be sold.

“We want to hurry up and take advantage of this market window,” Fabrizio Pagani, senior economic adviser to prime minister Enrico Letta, told the Financial Times on Sunday, confirming that the four sales would be made through initial public offerings.

Details of the privatisation programme were outlined after a cabinet meeting late on Friday, with Mr Letta saying proceeds would allow Italy to reduce its crippling public debt of over €2tn for the first time in six years.

The government intends to retain controlling stakes by selling 40 per cent of postal services operator Poste Italiane and 49 per cent of air traffic controller Enav.

Separately, Cassa Depositi e Prestiti (CDP), a Treasury-controlled funding vehicle which manages the postal savings deposits taken by Poste Italiane and also operates a strategic investment fund, plans to sell stakes in Fincantieri, Europe’s largest shipbuilding group, and Sace, an export credit agency.

Also to go are the government’s four per cent holding in energy group Eni; a 13 per cent stake inSTMicroelectronics, a semiconductor manufacturer which is partially owned by the French government; Grandi Stazioni which manages Italy’s largest railway stations, and CDP holdings in Snam and Terra, operators of the gas and electricity grids.

“This is the largest privatisation programme since the 1990s, when Italy prepared to enter the euro,” Mr Pagani said.

However the sell-off, pushed by the European Commission, depends on a period of political stability to see the legislation through parliament. Mr Letta’s nine-month-old coalition aims to stay in office until 2015 but has to navigate the danger of snap general elections this May if Matteo Renzi, leader of Mr Letta’s Democratic party and aspiring prime minister, fails to make progress with his agenda of sweeping institutional reforms.

The government’s intention to retain majorities in key companies, such as Poste Italiane, may help placate trade unions and leftwing parties but has raised questions over the validity of the process.

“When the government keeps control of the company and shares it with the unions, leaving an old bureaucrat to run the company, I don’t call this a privatisation,” commented Francesco Giavazzi, economics professor at Milan’s Bocconi university.

“It is a bit of a wishy washy process of privatisation as the state has said it only plans to sell minority stakes,” said a senior banker, saying sales of energy group Eni and utility Enel – not on the agenda – would be more appealing.

Bankers were also sceptical about the sale of Enav because of the parlous state of the Italian airline industry and political sensitivities.

Fabrizio Saccomanni, finance minister, said the 40 per cent stake in Poste Italiane could raise from €4bn to €4.8bn, while the partial sale of Enav could yield €1bn. The government has previously set a total target of €12bn for its privatisation programme.

The sale of Poste Italiane, which employs 144,000 workers, is the most controversial, with the government aiming for an IPO by as early as July. Leftwing trade unions have already voiced objections. Susanna Camusso, leader of the CGIL federation, has warned that past lessons taught that privatisations were “not the way to help the economy”.

The more moderate CISL union has welcomed the planned sale, which the government says will make shares available to employees and could leave unions with representation on the board. Mr Pagani said shares could be offered to workers at a discount “to get the support of employees and unions”.

Poste Italiane’s privatisation has been on the agenda of successive governments. The group reported a net profit of €1bn in 2012 on revenues of €24bn, with €19bn coming from its financial and insurance services. Massimo Sarmi, the chief executive, who is lobbying to keep his post after the sale, has said the group would be sold as a whole, rather than broken up.

Bankers remain sceptical that Poste Italiane will be ready to float this year, given its close relationship with the state. This was highlighted last year when, under pressure from the government, Mr Sarmi agreed to acquire a 19.5 per cent stake in Alitalia in a recapitalisation that saved the privately owned airline from bankruptcy.

Fincantieri is expected to be first off the block. Banks launched their pitches to manage the IPO last week. Mr Pagani said part of the proceeds would be reinvested in the shipbuilder while the CDP could make a special dividend to the Treasury that would also go towards debt reduction.