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Chinese stakeholders will exit Italian dronemaker Alpi Aviation – all too slowly

A dronemaker falling into the hands of two Chinese State-owned enterprises. A government intervention ordering the sale’s reversal. An obscure system designed to keep the ownership where it was. Here’s what is going on with the Alpi Aviation case

The slowest retreat. Sooner or later, the Chinese control of Alpi Aviation will come to an end. But apparently, the time still hasn’t come. In 2018 the Italian dronemaker was bought (in violation of Italian laws) into the hands of Mars (HK) Information Technology Co. Limited, a Hong Kong-based company concealing two Beijing-based State-owned groups. Since the operation had not been notified under Golden Power regulation, the Draghi government ordered the operation to be rolled back. Here’s what actually happened.

  • On June 26 (three months beyond the prescribed deadline) Alpi Aviation transferred 75% of its shares to Moreno Stinat, one of the company’s founders and now chairman of the board of directors, who owned another 16.5% (the remaining 8.5% is held by Corrado Rusalen).
  • All that remains is to wait for the outcome of the Golden Power procedure: after this step, Mr Stinat could sell all of its shares (91.5%) in Alpi Aviation, a company with 24 employees and a turnover of €3,659,375 in 2021, to a new buyer.
  • However, according to an investigation by our sister website (which accessed notarial deeds), the majority owner has pledged the share to Mars Information, the Hong Kong company that will continue dictating the rules of the game.

Let’s start from the beginning. Mars Information had acquired 75% of Alpi Aviation in 2018, violating the laws on transferring strategic, technological, and armament information, as well as Golden Power regulation. The Hong Kong-based company was set up five months before the purchase and lacked autonomy and financial resources, as noted by the Guardia di Finanza (GdF, Italy’s financial police corps), which also noted that Alpi Aviation was valued at 90 times more than its nominal value (€3,995,000 against €45,000).

  • Behind Mars Information are the China Corporate United Investment Holding (CCUI) fund and CRRC Capital Holding, which is headed by CRRC Corporation Limited, a giant listed by the United States as part of the industry involved in the People’s Republic of China’s civil-military fusion strategy to promote the People’s Army’s modernisation goals.
    • Both are supervised by the State-owned Assets Supervision and Administration Commission of the Chinese State Council.

The Draghi intervention. After investigations by the Guardia di Finanza, which had already dealt with the company for allegedly violating the embargo on Iran, then-Prime Minister Mario Draghi signed a decree in March 2022 prescribing that Mars Information divest from Alpi Aviation within one year.

  • Additional provisions prohibited the Hong Kong-based company from exercising all rights (including voting rights but not asset rights) attached to the shares, and preemptively voided all the shareholder meeting’s resolutions adopted with the casting vote of such shares.
  • At the end of July, the Draghi government dismissed the possible fine for failure to notify the transaction, which could reach up to €280 million.

Why did the government intervene? The transaction had been deemed “likely to harm essential Italian and European interests related to the defence and security sectors, as well as to produce transfers of know-how, including through joint ventures, in the non-Italian/European sphere,” as recalled in the government’s recent report on 2022 Golden Power use and also highlighted by the GdF.

  • In fact, Alpi Aviation has contracts with the Italian Defence, particularly with regard to Strix-DF drones, developed and manufactured to support tactical operations and special forces.
  • The report also states that “the risks identified were not deemed mitigable through the imposition of special conditions, since, even where identifiable in the abstract, the relative monitoring and application of remedies in the event of their violation would have been extremely onerous, if not prohibitive, as well as particularly invasive.”

The world is watching. The Alpi Aviation case has had great international resonance, with articles published by Reuters and the Wall Street Journal, to name but two. And it also ended up in a presentation by Michael Orlando, then-Acting Director of the US National Counterintelligence and Security Center, at the 2022 Threat Conference (organised by Cipher Brief) dedicated to changes in the world of espionage and counter-espionage.

Time to sell. In late June, in the Milan office of notary Angelo Busani, Mars Information was represented by Rong Qi, a Chinese-born New Zealand citizen and sole director of the company. He provided an email address with the china-ccui.com domain, i.e. that of the State fund, in the deed – which is still subject to Golden Power suspension, as it states.

  • The deadline is September 19; meanwhile, according to civil law, the de facto pledge holder will exercise control.
  • Massimo Tammaro, former commander of the Frecce Tricolori acrobatic squad within Italy’s Air Force, is still the CEO of Alpi Aviation, whose board of directors has not included any Chinese nationals for a year now, as required by the Draghi-era decree.

What happens now? Mr Stinat declared, on record, his will to sell his entire (91.5%) stake in Apli Aviation. How much he will pay Mars Information depends on how the sell-off plays out. The deeds reveal four different scenarios – in all of which Mars Information’s role remains relevant.

  • One of the scenarios entails Mr Stinat selling Alpi Aviation to a holding that had already expressed interest in acquiring it but had walked back on the offer since it did not receive guarantees on Alpi’s contracts with the Italian Defence.
    • That’s Red Fish Long Term Capital S.p.A., an industrial partnership-centred holding company founded in 2020 by Paolo Pescetto and Andrea Rossotti in conjunction with the Bazoli and Gitti families, which went public at the end of June.
      • Red Fish would pay a fixed price of €3 million, a guarantee price of €750,000, a variable price linked to the UAV contracts (up to €3.7 million total).
  • If the new buyer won’t be Red Fish, Mr Stinat will have to consult with Mars Information asking for its consent to sell.
  • The worst-case scenario envisions the failure to resell within 24 months from the closing date (or 36 months if a substantially prejudicial event occurs). In this case, the price Mr Stinat will pay Mars Information will be agreed “in good faith” by the parties or determined by an expert opinion.

What of the future? The question now is: who will want to acquire Alpi Aviation after the various recent events that have caused heavy damage to its image? Two further elements must be considered. The first is that the company no longer has the authorisation to use the La Comina airfield, very close to the USAF base at Aviano, which it used (according to the GdF) thanks to the “shielding” provided by a Pordenone-based non-profit organisation – a highly revealing factor for a company operating in that sector. And secondly, unlike quotas, it’s impossible to recover transferred know-how – which irremediably ended up in Chinese hands.

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