Italy Mulls Selling Stakes in State-Owned Firms to Raise Cash

Prime Minister Giorgia Meloni’s coalition is considering selling minority stakes in selected state-owned companies to boost Italy’s public finances.

(Bloomberg) — Prime Minister Giorgia Meloni’s coalition is considering selling minority stakes in selected state-owned companies to boost Italy’s public finances.

Government ministers are evaluating the disposal of some assets, including a stake in the state railway, while still retaining control over the businesses, according to people familiar with the discussions. 

Separately, officials are also counting on the expected cash flow from the government’s planned sale of a stake in Banca Monte dei Paschi di Siena SpA next year, said the people, who asked not to be named because the talks are confidential and not at an advanced stage.

Meloni told ministers during a cabinet meeting on Monday that they need to pare back spending to pay for the government’s plan to cut taxes on wages and help families in need, according to the text of her speech. Economy Minister Giancarlo Giorgetti said after the meeting that “it may be a good idea to disinvest certain assets.”

Asset sales would be one option to allow Meloni’s far-right coalition to fund new spending without adding to Italy’s mammoth debt load, though the move could set off alarm bells with European Union regulators and in financial markets. 

With the economy faltering after unexpectedly contracting in the second quarter, the government is confronting the prospect that it could potentially overshoot its deficit targets of 4.5% this year and 3.7% in 2024.

A strategy of shrinking corporate holdings would introduce a new facet to the Meloni government’s brand of capitalism, an approach encompassing activist intervention in corporate affairs that doesn’t shirk from upsetting investors, so long as bond markets stay happy. 

Meloni surprised investors and markets in mid-August with a decision to impose a tax on additional profits earned by banks as a result of the European Central Bank’s decision to raise interest rates. 

The government has also taken an active role in a range of corporate sectors, from finance to aviation to technology. Italy on Monday approved a decree that empowers the state to take a stake in Telecom Italia SpA’s network business, part of an effort to assert more control over strategic assets. 

Since pushing through the controversial bank tax, Meloni has maintained a low profile, and newspapers including La Stampa have said her cancelation at an annual symposium with investors and executives this weekend at Lake Como was linked to a reluctance to face investors. Her two deputy premiers, Foreign Minister Antonio Tajani and League party chief Matteo Salvini, are expected to attend.

Monte Paschi

The Meloni government is “looking for proceeds in the context of the next budget law, even if non-recurrent such as divestments,” Mediobanca SpA analyst Noemi Peruch wrote in a note published Thursday. “It would make sense to maintain control of Monte Paschi to steer future M&A developments to fulfill commitments with the European Commission, which leaves €400 million in proceeds from the 13% placement.”

Siena-based Monte Paschi, which went through years of painful turnaround efforts after an initial bailout in 2009, has made progress in its most recent plan to revive profitability, this time under Chief Executive Officer Luigi Lovaglio. 

That could allow Rome to wind down its involvement in the bank by the end of next year — in line with EU requirements — while preserving Meloni’s ability to retain oversight.

–With assistance from Chiara Albanese and Chiara Remondini.

(Updates with Monte Paschi, analysts from 11th paragraph.)

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