Bad news for China’s ownership of State assets in Italy. Several investment banks are reportedly working towards a solution to reduce Beijing’s presence in the energy and utilities sector, in line with a wider push to safeguard strategic assets from foreign influence.
According to revelations obtained by the Italian daily Repubblica, the plan is geared at downsizing State Grid of China (SGOC)’s stake in CDP Reti, a holding controlled by Italian State lender CDP that owns significant shares in leading Italian energy and utilities companies – namely Snam, Terna and Italgas.
Back in 2014, CDP was in need of recapitalisation. The Italian government chose to turn the State-owned SGOC into a strategic partner by selling them 35% of CDP Reti for €2.1 billion, betting that the move would have brought the two countries closer.
In hindsight, that was a bad bet. Firstly because CDP Reti managed to double its value in seven years (from €5 to €9.8 billion) and generated €2.58 billion in dividends by walking on its own legs. And secondly, the Italian companies participated by CDP Reti found themselves repeatedly competing against the Beijing-bankrolled partner in foreign countries.
The most significant instance of that happened in 2016, when Terna attempted to buy 24% of the Greek grid IPTO but failed to match SGOC’s €320 billion offer, which was even bigger than the 293 bn Beijing splurged to own 51% of the highly strategic Piraeus seaport. Not the first nor the last time China paid significantly more to ensure strategic control overseas.
Since then, though, Italy has made great strides towards reducing its exposure to Beijing’s influence. The watershed came with the implementation of the State’s Golden power, i.e. a means for the government to intervene in the dealings of private companies of strategic interest for the country to safeguard national interest.
Understandably, this crackdown is creating frictions with Beijing. Repubblica went on to reveal that, as of late, Yunpeng He – China’s pick to sit on the boards of CDP Reti, Snam, Italgas, Terna and IPTO – has “apparently” walked out from several board meetings due to lingering conflicts.
Today Prime Minister Mario Draghi acts as the guarantor of the country’s firm commitment to Europeanism and Atlanticism, especially when it comes to strategic issues. And his government has not been shying away from using the Golden power to limit Chinese overreach, especially with regards to the Italian tech sector, telecoms and 5G.
Dario Scannapieco, CDP’s CEO, was handpicked by Mr Draghi and is in sync with the government’s course. Also, under today’s new European and Italian rules, SGOC wouldn’t have had the possibility to acquire 35% of CDP Reti. Ultimately, the bank-driven plan to resize SGOC’s stake in CDP Reti bears the marks of Rome’s wider pivot towards securing its assets.
There’s a precedent: in 2020 another energy and utilities company, Ansaldo Energia, found itself in a similar predicament to CDP in 2014. The latter went ahead and recapitalised it itself, while also diluting the shares of Shangai Electric from 40% to 12.4%.
Nonetheless, the solution is far from being straightforward, as the 2014 acquisition terms do not contemplate a clear-cut manner to regulate the exit of the Chinese.