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Italy and the City

 

Italy and the City

city london


The UK has begun Brexit, the process of separating from the European Union. It is still too early to predict how much of the extensive financial industry based in the City, currently the largest financial hub in the world, will be transferred to other centres in the Eurozone. The likelihood that the UK will leave the European Single Market, the resulting loss of passporting (the mechanism allowing countries within the Single Market to carry out euro-denominated financial activity outside the Eurozone), and the likelihood that a transitional arrangement for financial dealings will be made only at the end of the two-year negotiating period have obliged financial operators based in London to examine the possibility of transferring part or all of their human resources and capital to the Eurozone. Although this entails a number of challenges in terms of regulation, labour law, taxation, restrictions on the movement of workers, and logistics, a number of financial hubs in Europe, including Milan, are likely to benefit from the segmentation of London’s financial industry.

The City, which acts both as a global financial hub and as a European base for Asian and North-American investors, constitutes a barometer of investors’ and financial operators’ perception of Italy. In recent months, Italy has experienced increased interest from operators based in London. The reasons for this are both external and internal. Firstly, low interest rates have tended to channel funds towards assets and markets regarded as riskier and thus more profitable. Secondly, investors have recognised the strategic value of the institutional and structural reforms currently being implemented in Italy, which appear to mitigate numerous risks, such as low growth rates, political instability, legal frameworks and the safety of the banking system.

In consideration of the above, investors are given regular updates on visits to London by Italian ministers and government officials. 2016 saw two visits Pier Carlo Padoan, the minister of economy and finance, as well as visits by Maria Elena Boschi, the then-minister for constitutional reform and parliamentary relations; Raffaele Cantone, the president of the National Anti-Corruption Authority; and Giuseppe Sala, the mayor of Milan. A joint visit, presenting investment opportunities in Italy and in Milan, was made in early 2017 by Angelino Alfano, the minister of foreign affairs and international cooperation; Pier Carlo Padoan; Roberto Maroni, the president of the Lombardy region; and Giuseppe Sala. During all of the above visits discussions were held with investors and updates were given on the progress of various reforms. The visits helped paint an accurate picture of the Italian business environment and assess the effectiveness of measures that are being implemented to improve it.

Italy’s labour-market reforms and the conversion of its mutual banks to joint-stock companies have been a central consideration for financial operators, as has the fact that the great majority of mergers and acquisitions on the Italian market involve foreign investors. It is thus clear that Italy is widely regarded as an open market, with businesses such as Pirelli-ChinaChem, Ansaldo-Hitachi, CDP Reti-China State Grid investing in it.

A number of private equity funds and sovereign and pension funds operate in the sectors of real estate, commercial spaces, ports, airports and other infrastructure. These operators include, among others, Blackstone, Axa, Colony Capital, M&G, Sorgente, Prelios, Morgan Stanley, Amundi, Hines, London&General, Resolute Asset Management, Azerbaijani, Qatari and Norwegian sovereign funds, Gruppo Investimenti Portuali (GIP) and SAVE. There is also much interest in “Corporate Italy”, in the form of direct investments in capital markets and debt financing of Italian medium-capitalisation companies through direct lending, mini-bonds, and hybrid investments such as mezzanines, all of which are widespread in the sectors that are the traditional drivers of the Italian economy, such as consumer goods and exports of manufactured goods. As confidence grows, investments are expanding into the sectors of utilities, pharmacy and IT. In many cases, it is at their London offices that private funds make decisions about whether to participate in the business-rescue fund recently set up by the Ministry of Economic Development and the lender Cassa Depositi e Prestiti. (This was the case, for example, with the private funds KKR and CVC Credit Partners.) KKR and Alvarez&Marsal also participate in negotiations with major Italian banks on the restructuring of credit for medium-large Italian manufacturers.

Investment in listed Italian companies, such as FTSE Mibtel and STAR, remains high. Fidelity, Norges Bank (a Norwegian sovereign fund), Amber Capital, UBS, Highclere and Invesco are among the most active funds. Borsa Italiana, part of the London Stock Exchange Group, promotes access to London finance for Italian companies, running initiatives such as roadshows, mentoring programmes and schemes such as the Elite programme that connect SMEs to the capital market.

The banking sector, which has recently seen widespread disposal of non-performing loans (NPLs), continues to be watched closely by financial operators. Recent developments include the reform of local banks; the introduction of the GACS, an instrument facilitating the disposal of non-performing loans; the establishment of Atlas, a private bank-recapitalisation fund; and the introduction of a bank-rescue fund. Following these and other developments, investors expect to see consolidations in the mid-market segment and increased return on investment, as well as reduced costs and an upturn in the domestic economic cycle.

The Embassy of Italy in London engages in regular dialogue at all levels with the financial community of the City. It also runs public-diplomacy initiatives to connect Italian companies with the capital markets and to provide investors and analysts with an up-to-date picture of the situation in Italy and information on investment opportunities in the country.


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