Don’t let Italy's politics deter you from IPOs

An unorthodox government is now in charge in Italy, but this should not prevent investors from backing Italian corporates as they prep initial public offerings.

  • By Sam Kerr
  • 22 May 2018
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A coalition between the Five Star Movement and the Northern League was widely seen in markets as the worst potential outcome before the country went to the polls in March.

Both parties did better than expected at the election, but it wasn’t clear until last week that the only realistic option that electoral maths allowed for was going to come to fruition.

Messrs DiMaio and Salvini offer a anti-establishment package which incorporates huge spending, tax cuts, Russophilia and anti-immigrant fervour, all wrapped up in a Eurosceptic ribbon.

That's left investors a little jumpy about Italy’s prospects. The benchmark FTSE MIB index has fallen consistently since talks between the coalition partners gathered steam last week.

On Monday, Rainbow Group, an Italian media company, suspended its IPO on the main market of the Italian stock exchange as a result of this heightened volatility.

But, this impending government of economic and political iconoclasts should not put investors off Italy completely, especially from investing in solid businesses seeking to float.

First, there's no guarantee that Five Star and Liga Nord together will have more luck navigating Italy’s political system to push through a radical programme than any other government. The coalition will have a slim majority in both chambers of the legislature, with only 167 of the 315 seats in the Senate. That 19 seat differential between the new government and opposing parties could disappear quickly for the most controversial measures. 

Sergio Mattarella, Italy’s president, also has the power to veto legislation considered unconstitutional, although this power is rarely used. 

Italy has not had a history of strong governments and they tend to come and go quickly. The Five Star/League coalition will be its 66th since the end of World War II.

As one banker said before the election, “Italy has been dealing with political instability since the Roman Empire”, and yet the country continues to function. Even if the new government does drastically better than most other government and succeeds in passing a radical programme, the environment for Italian corporates might not change that much.

Italy has a strong export-led corporate sector, such that even if the Italian domestic economy fails to perform, that may not hurt profits. The country’s main export partners are Germany (12%), France (10%), the US (9%), Spain, the UK and Switzerland (5%).

Even the worst case scenario for the new government, an exit from the euro, is unlikely to dent global demand for Gucci handbags, Ferraris or Pirelli tyres. In fact a weaker currency could even help exports.

Domestically, the economy is also in the best shape it has been for years, and the country’s banks are finally making progress in cleaning up their balance sheets, primarily through equity capital raising and the sale of non-performing loan portfolios.

Italy has recovered well since the crisis and as a result its stock market was the best performer in Europe for the first few months of this year, before political volatility increased.

In 2017 the Italian IPO market also took a turn for the better, with volume up 237% by November, according to figures from UniCredit.

Ample foreign demand and a stronger domestic investor base, spurred on by reforms which encourage investment in mid and small-cap Italian businesses, means that many high quality Italian companies are now considering going public.

Because of this bankers in Italy have say that there are plenty of IPOs in preparation — and it would be a shame if a little political trouble got in the way of genuinely worthwhile capital-raising.

Despite all the noise, it remains a country with strong democratic and financial institutions which will preserve stability. Even if the government is allowed to exercise some of its worst impulses, this is not Erdogan’s Turkey or Putin’s Russia.

Given complaints about a lack of exciting European IPOs coming to market, buyers are in no position to be turning down genuinely interesting companies just because they happen to be Italian.

If investors feel that the price is right, and are confident in the company and the management team, then they should not let the government stop them buying.

  • By Sam Kerr
  • 22 May 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 187,839.72 828 8.20%
2 Citi 177,811.20 723 7.76%
3 Bank of America Merrill Lynch 146,015.32 604 6.37%
4 Barclays 141,376.85 560 6.17%
5 HSBC 117,136.47 604 5.11%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 17,156.20 81 7.00%
2 Credit Agricole CIB 14,626.10 73 5.97%
3 Bank of America Merrill Lynch 13,982.20 42 5.71%
4 UniCredit 11,996.19 65 4.90%
5 SG Corporate & Investment Banking 11,443.33 58 4.67%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Morgan Stanley 6,404.49 28 10.72%
2 Goldman Sachs 5,586.94 27 9.35%
3 JPMorgan 5,185.69 33 8.68%
4 UBS 4,134.32 20 6.92%
5 Citi 4,039.74 28 6.76%