Hedge fund lodges complaint against Italy over Autostrade stake sale

TCI, the UK hedge fund run by Christopher Hohn, is one of a group of investors lodging a complaint with Brussels against Italy over its move to force the Benetton family to relinquish control of its toll road business, which was at the centre of the Genoa bridge disaster.

“What the government is doing is illegal and it will have a chilling effect on international investments into Italy,” Sir Christopher, founder of TCI, told the Financial Times.

TCI and several funds have called on the European Commission to launch an infringement procedure against Rome taking control of Autostrade per I’Italia away from Benetton-family owned Atlantia, the infrastructure group.

Atlantia has been at loggerheads with the government since the Genoa bridge collapse in August 2018, claiming 43 lives. Autostrade was responsible for the upkeep of the bridge.

The Five Star Movement, Italy’s senior coalition partner, vowed to strip the company of its concessions as a punishment for the disaster.

The Benetton family was forced earlier this month by the Italian government to make an agreement to give state-owned lender Cassa Depositi e Prestiti a majority stake in Autostrade.

CDP will take an initial 33 per cent stake in Autostrade through a capital increase worth about €3bn, diluting Atlantia’s 88 per cent stake. Atlantia will then sell 22 per cent to private investors chosen by CDP, but the price is yet to be agreed and, according to investors and Italian officials, there are major disagreements on how to calculate the price.

The company would then be demerged and floated early next year.

The investors allege the terms imposed by Rome are illegal and do not guarantee investors fair market conditions, prompting action from several international fund managers.

They have asked lawyers to draw up formal complaints under EU law.

According to documents seen by the FT, London-based TCI, which owns 1 per cent of Atlantia with an exposure of 5 per cent in equity swaps, this week filed a 12-page complaint to EU commissioner Margrethe Vestager.

It alleges the Italian government breached at least eight principles of EU law. The fund has also written a letter to the Italian government accusing it of “expropriation” and proposing an alternative solution to their plan.

Autostrade was responsible for the upkeep of the Genoa bridge, which collapsed in 2018, claiming 43 lives Autostrade was responsible for the upkeep of the Genoa bridge, which collapsed in 2018, claiming 43 lives © AP

King Street Capital Management and Farallon Capital Management, which own 1 to 2 per cent stakes in Atlantia, will also file complaints, according to multiple people involved. Another three US-based hedge funds are weighing their options as well, according to the people.

King Street and Farallon declined to comment.

TCI wrote in the complaint: “The intention of the prime minister (in a fashion akin to a threat) was to revoke the concessions if [Autostrade] did not accept all the conditions proposed by the government.

“The agreement was driven by political reasons and was reached [without] any legal framework.” 

A spokesperson for Italian prime minister Giuseppe Conte declined to comment on the allegations.

According to three Italian officials, the government also plans to ban Atlantia from distributing dividends following the sale while requiring the company to reinvest the profits in other Italian businesses of the group, including Aeroporti di Roma, the Rome airport operator.

Last week, Luigi Di Maio, the foreign minister and a member of Five Star, wrote on Facebook that Italy “must work to ensure market principles do not apply to the new Autostrade”.

“We are concerned that despite the agreement in principle, the process is going to be problematic and we will not be able to agree on a price,” said Sir Christopher.

Jonathan Amouyal, TCI fund’s partner who lodged the complaint, said Autostrade’s current valuation “stands at around €11bn-€12bn, CDP’s €3bn corresponds to a 26 per cent share, the only solution to ensure a smooth exit of Atlantia from the toll road business is for CDP to buy the company at market price without the capital increase”.

The government said the company is worth €9bn. CDP’s advisers are due to come up with the lender’s own valuation.

Earlier this year, the Italian government introduced a new law unilaterally changing the terms of the 2008 concessions agreement with Autostrade, slashing the company’s compensation in case of early termination and reducing toll road fees. The move prompted rating agencies to downgrade the company to junk. 

“International investors cannot put their money in countries that lack rule of law,” Sir Christopher said.