(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

 

MILAN - Italy is playing both striker and referee in the battle for the country’s stock and bond market, Borsa Italiana – and fumbling on both accounts.

Prime Minister Giuseppe Conte’s government has openly sided with $8 billion French exchange operator Euronext through its version of a sovereign wealth fund, Cassa Depositi e Prestiti (CDP). And it may use veto powers to impede bids it deems less desirable, frustrating other suitors. The risk is that the cost of capital for Italian businesses inches ever higher.

Under the influence of the 5-Star Movement co-ruling party, state intervention has reached a new peak. From telecommunications to motorways, Rome hasn’t been shy about using Treasury-controlled CDP as an instrument of power over a plethora of assets. It’s now directing its attention to the Milan-based exchange, worth possibly 4 billion euros, which London Stock Exchange Group is selling to clear its $27 billion Refinitiv takeover.

The government’s primary aim seems to be to gain some oversight of government bond-trading platform MTS, Borsa’s most attractive asset. Some fears are warranted. In 2011, clearing house LCH.Clearnet hiked trading margins on sovereign Italian bonds just as their yields were blowing up, potentially impeding capital flows. Ensuring tighter Italian oversight may prevent such an occurrence.

But the means employed to achieve this objective look questionable. In a clear swipe at Zurich-based suitor SIX, Finance Minister Roberto Gualtieri threatened to use Italy’s so-called “golden powers” to block non-euro zone players even before all bids were submitted. And it undermined a potential offer from $34 billion Deutsche Boerse by encouraging CDP to join forces with Euronext, which is offering an 8% stake to CDP and governance concessions.

Under normal circumstances, the Borsa sale was going to be an auction to the highest bidder. The political dimension makes it difficult for LSE to maximise its return. Picking a bidder that Rome disfavours may unfold legal battles and slow down its Refinitiv deal.

Rome could have achieved its objectives by setting clear terms at the outset that all bidders needed to respect. In extremis, it could object to bids based on merit once the details were revealed. By meddling so openly and aggressively in the process, it simply raises the cost of doing business in Italy.

 

CONTEXT NEWS

- Pan-European stock exchange Euronext said on Sept. 11 that it was in discussions with Italian state investor Cassa Depositi e Prestiti (CDP) to submit an offer for Milan-based Borsa Italiana, which London Stock Exchange Group may sell to win regulatory approval for its $27 billion Refinitiv acquisition.

- Reuters reported on Sept. 10 that Euronext would allow CDP to take a stake of around 8% in Euronext – the same as French state investor Caisse des Depots et Consignations – and make governance concessions.

- Swiss stock exchange SIX and Deutsche Boerse are also planning to launch rival bids for the Milan-based bourse, which controls government bond platform MTS through a 62.5% stake, Reuters has reported.

- Italian Finance Minister Roberto Gualtieri said on Sept. 9 that he wanted Borsa Italiana to stay within the euro zone and warned that Rome was ready to use its “golden powers” that allow it to protect strategic assets to ensure that it was not sold to an unacceptable bidder.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Rob Cox and Oliver Taslic) ((lisa.jucca@thomsonreuters.com ; Reuters Messaging: lisa.jucca.thomsonreuters.com@reuters.net))