April 22, 2012 2:36 pm

Italy ponders Snam split from Eni

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Italy’s government is considering two options to split national gas transmission network Snam from energy group Eni in the latest test of the ability of Mario Monti’s technocratic government to carry out structural reforms.

The move was passed in Mr Monti’s “Save Italy” decree in December, a parcel of reforms intended to cut costs and boost growth, and is aimed at reducing energy bills for Italian consumers by increasing competition among energy providers.

Mr Monti has until May 31 to decide the mode by which Snam – 50 per cent owned by Eni, which is in turn 30 per cent owned by the Italian state – will be separated from the energy group. Such a deal was mooted by successive governments over the past decade but never executed.

The first option would see Terna, the national electricity transmission company, buying 29 per cent of Snam, according to several people involved in the discussions. At Friday’s closing prices, that stake would be worth around €3.5bn. The remaining 20 per cent held in Snam by Eni could be sold on the market.

Such a move opens up the possibility of a full merger between Snam and Terna in the longer term, reminiscent of the £14.8bn tie up of the UK’s electricity and gas transmission operators National Grid and Lattice in 2002, according to people familiar with the dossier.

Based on the savings made in the UK transaction, Centrobanca analysts estimate a potential merger between Snam and Terna could deliver €110m of savings due to overlaps at corporate level and in operating areas.

Terna is 30 per cent owned by the state-financing agency CassaDepositi e Prestiti.

The second option, which in effect means a partial re-nationalisation, would increase the state’s participation in Snam.

It would see Italy’s state financing agency CDP, buying 29 per cent of Snam and controlling it via a vehicle in which it would also hold its stake in Terna. Again, the remaining 20 per cent the stake held by Eni in Snam could sold be on the market.

The decision comes at a crucial time for Mr Monti who is battling a slide in perception at home and abroad about the extent of his reformist agenda after backtracking on labour reforms under pressure from unions.

Parties involved in the discussions are concerned any move perceived to be a re-nationalisation would send signals to international investors that the government is favouring statist solutions at a time when Italy is in dire need of foreign investment.

A deal involving CDP would also be an additional burden on the Italian taxpayer.

Those in favour of the CDP option argue that energy infrastructure is a strategic asset of the Italian state and that the small size of Terna relative to Snam would require a fundraising to execute the transaction.

Analysts estimate Terna, with a market capitalisation of €5.6bn, could need to raise €1.5bn to €2bn in additional capital to complete the deal. At Friday’s closing price, Snam was worth €11.7bn.

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