FCT Fincantieri SpA

MILAN—The Italian government completed the sale on Friday of a minority stake in postal service Poste Italiane, the largest of a string of privatizations Prime Minister Matteo Renzi is pressing ahead with and a major test of his ability to convince foreign investors Italy is on the road to recovery.

The offer, the first large sale of shares in government-owned companies in 16 years, generated around €3.4 billion ($3.8 billion) in much-needed cash for the government and was priced at €6.75 per share—at the mid-point of the price range initially indicated, valuing the business at roughly €8.8 billion.

"It was a great success," said Italy's Economy Minister Pier Carlo Padoan. "It confirms the markets' confidence in our country."

The sale of Poste was seen as a test case for Mr. Renzi's government efforts to privatize state behemoths as it tries to reduce the country's public debt, the second-largest of the euro zone after Greece. The positive result of the sale could reinvigorate these efforts, after the flop of shipmaker Fincantieri SpA's initial public offering, where the shares offered were cut by a third and priced at the bottom of its price range in June 2014. That deal started the Renzi government's privatization effort off on the wrong foot.

One of the main reasons behind the Fincantieri's problematic sale, according to brokers, was the decision not to pay dividends for the first three years. The government said at the time that difficult market conditions undermined the outcome.

After Poste, the government plans to list a 49% stake in air-traffic-control operator ENAV SpA in the first half of next year and to partially privatize state railways Ferrovie dello Stato Italiane Group. It said it is also considering selling a stake in highway maintenance agency Anas in the future.

The planned transactions will help reduce the country's debt, seen this year at 132.8% of gross domestic product, by 0.4% of the country's GDP this year and 0.5% each of the following three years, the government said in its budget law it approved last week. For this year, it said the target appears to be within reach.

Privatizations are one of the main points of Mr. Renzi's reformist agenda. The timing of the Poste IPO is also relatively good, with the Italian economy expected to grow 0.9% this year, exiting a three-year long recession—the longest since World War II.

Yet, the recovery is too timid to shake off decades of stagnation and Mr. Renzi still needs to prove to investors and policymakers that he can reinvigorate the Italian economy.

The outcome of the â,¬12 billion privatization plan—which Mr. Renzi inherited from the previous government—has been disappointing so far. Last May, the International Monetary Fund warned Rome that its progress in reducing debt remains insufficient and urged it to take advantage of favorable market conditions to be more ambitious in its privatization targets.

Despite only reducing slightly Italy's debt, the Poste's IPO represents what Mr. Renzi's called "a change of direction" in his push for the modernization of the country. The young prime minister hopes it could help show that, thanks to his broad economic overhauls, Italy is able to attract foreign capital again.

The government promised a hefty dividend payout for the next two years to entice investors at a time of low interest rates. This corresponds to around a 5% yield at the pricing of the IPO, compared with 2% to 3% for large Italian banks and 0.2% for two-year government bonds, making the investment quite appealing, said Giacomo Tilotta, fund manager at AcomeA SGR.

Now, the government is facing a decision as to whether to list the whole Ferrovie Group--which includes the railway network, a train operating business and a vast real estate business made up by the stations—or only part of it, but keeping control of the railway grid.

Advocates for listing a stake in the entire holding company, such as Ferrovie's Chief Executive Michele Elia, argue the company now benefits from cross-synergies among the various businesses.

For instance, the train operating business can currently borrow more easily because it can guarantee its debts with the vast amounts of assets the holding owns, such as the railway grid, said Paolo Beria, a professor in Transport economics at Milan's Polytechnic.

Others, such as Transport Minister Graziano Delrio, say it would be preferable to spin off the railway grid and maintain it into public hands, as it represents a public good.

"There's an ongoing discussion within the government and with the interested parties," said Fabrizio Pagani, head of the office of the Economy Ministry.

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(END) Dow Jones Newswires

October 23, 2015 07:25 ET (11:25 GMT)

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