Analysis-Italy scrabbles to lure back sovereign wealth funds

FILE PHOTO: Italy's PM Meloni holds her end-of-year news conference in Rome

By Giuseppe Fonte and Angelo Amante

ROME (Reuters) - Italy is courting sovereign wealth funds (SWFs) to invest in a new scheme to provide resources to firms operating in strategically important sectors, but past experience suggests it will be hard to get them on board.

Prime Minister Giorgia Meloni plans to inject up to 1 billion euros ($1.10 billion) of state cash into a fund for firms operating in sectors including energy and procurement of raw materials, Reuters reported this month.

To give the project more muscle, a senior government official told Reuters that Meloni wants to draw investments from Qatar, the United Arab Emirates, Azerbaijan and Norway. The industry ministry has so far only publicly stated that it was seeking the involvement of Saudi Arabia.

The government has yet to clarify how much money it expects to raise from the sovereign funds. Under a bill expected to become law by the end of this year, the Treasury would probably keep a minority stake in the new vehicle, which will also be backed by state lender Cassa Depositi e Prestiti (CDP).

Another government official said Rome would offer a highly-focused strategy to convince investors to put their money into specific businesses deemed as strategic, without spreading the funds too thin.

Analysts are sceptical about the chances of success, citing Italy's complex bureaucracy and legislative hurdles.

"It is difficult to persuade foreign investors to bet on Italy. They should be ready to face legislative, fiscal and judicial chaos," said Fabio Scacciavillani, a partner at Nextperience financial consultancy who previously worked at the Oman sovereign fund.

He mentioned as an example the attempt of UAE'S Etihad airline to rescue the former flagship carrier Alitalia, which ended in failure in 2017 when the government was forced to appoint special commissioners to run the company.

Data from Milan's Bocconi University Sovereign Investment Lab shows that money from Middle East SWFs into Italy peaked in 2010 at $2.3 billion in terms of deal value. However, over the past five years, they have put barely $1 billion into Italy.

In 2021, there were zero investments -- a possible backlash from the Gulf after the then Prime Minister Giuseppe Conte imposed an embargo on arms sales to the United Arab Emirates (UAE) because of its role in the war in Yemen.

Since taking office last October, Meloni has sought to forge closer ties with the Gulf, shrugging off the concerns of previous coalitions over human rights in the region. She visited the UAE in March and subsequently lifted the arms embargo.

DUPLICATE?

Italy's plan takes its cue from an initiative announced this month in France, where private equity firm InfraVia Capital Partners will launch a 2-billion euro fund dedicated to critical materials projects, a quarter of which will be funded by Paris.

The bill proposes that the Italian Treasury should invest in "high-potential national enterprises" through financial vehicles or investment funds promoted by CDP.

Rome will operate according to "market terms", a draft seen by Reuters showed, to avoid breaching European Union rules against state aid.

A recent attempt to help strategic industries highlights the difficulty of creating such funds.

The so-called "Patrimonio Rilancio" was launched in 2021 to bolster companies hit by the pandemic. It was originally intended to provide some 40 billion euros of financing, but has so far managed to invest just above 1 billion.

Brussels set very strict criteria for such funds and there was low demand for the scheme, as eligible companies eventually preferred to invest their own money rather than having the state as co-shareholder or creditor, a government official said.

Economists say the upcoming fund also risks duplicating CDP Equity, a CDP unit formed in 2011 and tasked with injecting capital into strategic assets, which has around 10 billion euros of investments and owns stakes in several firms.

"How would the new fund relate or complement CDP Equity or other existing vehicles? The risk is (you would have) unclear, overlapping mandates generating confusion in execution," said Bernardo Bortolotti, the head of the Sovereign Investment Lab at Milan's Bocconi University.

Bortolotti also said the size of the initial government investment "speaks volumes" about its limited ambition.

"The last thing Italy needs is a small, ministerial, sub-sovereign fund," said Bocconi's Bortolotti.

($1 = 0.9084 euros)

(Additional reporting by Gavin Jones in Rome and Giulio Piovaccari in Milan; Editing by Crispian Balmer and Emelia Sithole-Matarise)