Italy plans $47.8 billion fund for firms hit by coronavirus

Italy plans to launch a fund worth up to 40 billion euros ($47.8 billion) this month to help its companies hit by the coronavirus crisis raise capital and strengthen their balance sheets, two sources familiar with the matter said.

Italian Prime Minister Mario Draghi said on Friday he would hike this year’s budget deficit further in order to support the economy hit by a worsening coronavirus crisis and promised to intensify Italy’s vaccination drive.

The so-called “Patrimonio Rilancio” is a special purpose vehicle (SPV) to be financed by the Treasury via specifically issued sovereign bonds and managed by state lender and equity investor Cassa Depositi e Prestiti (CDP).

The Treasury will give the bonds to the CDP, which can use them as collateral to raise liquidity on the market.

The 170-year-old CDP, which the Treasury controls with an 83% holding, is playing an increasingly active role in Italy to keep strategic assets in national hands and mitigate the economic damage caused by the pandemic.

Taking advantage of the European Union’s more flexible approach to state aid in the face of the COVID-induced recession, the fund will invest in non-financial Italian companies with revenue above 50 million euros, over the next 12 years.

Rome will issue up to 40 billion euros of sovereign bonds in several tranches, increasing a public debt pile which already equalled 155.6% of national output at the end of last year, a post-war Italian record.

The timing of the bond issuance will track the fund’s capital injection deals, the two sources said. The size of the initial tranche will be set out in a decree now being drafted by the Treasury, they added.

The scheme allows the CDP to help companies in severe financial difficulty. It can do this through capital injections, bonds convertible into shares or risky subordinated debt, which ranks below senior debt when it comes to repayment.

Speaking at an inoculation centre at Rome’s Fiumicino airport, Draghi also played down health concerns about the AstraZeneca vaccine, which some countries have suspended following the deaths of a handful of people who had taken it.

“I will propose to parliament ... a new increase in the deficit,” said Draghi, who took office a month ago at the head of a government of national unity.

Rome’s most recent estimate was for a deficit-to-GDP ratio of 8.8% this year, down only slightly from 9.5% in 2020 when the economy shrank by 8.9%, Italy’s steepest recession since World War Two.

Draghi spoke shortly after the cabinet approved a decree ordering a nationwide lockdown over the Easter weekend. It also toughened curbs on economic activity and freedom of movement from Monday to try to rein in a rise in COVID-19 infections.

Italy has reported more than 100,000 deaths from the disease since discovering its first cases 13 months ago, the seventh highest toll worldwide.

Draghi said a new decree to be presented next week will extend furlough schemes, bolster income support for the poor and simplify procedures to compensate firms whose revenue have been hit by COVID closures.

This package of measures, worth 32 billion euros ($38.17 billion), was already budgeted for by the previous government, while Draghi said he would ask parliament in April for authorisation to increase spending further.

Draghi said Italy’s medicines authority believed there was no link between the AstraZeneca vaccine and recent deaths of people who had taken it, which prompted Denmark, Norway, Iceland and Bulgaria to suspend the vaccine and Italy to block a batch.

Italy is currently vaccinating some 170,000 people per day, the prime minister said, adding: “The goal is to triple that quickly.”

Amid reports of many Italians managing to get vaccinated ahead of the elderly and chronically sick, Draghi appealed for a sense of responsibility.

“I ask everyone to wait their turn,” he said, citing the example of the 79-year-old head of state Sergio Mattarella, who was only vaccinated this week.

Italy’s economy shrank by 8.9% in 2020, the steepest annual recession since World War II. Curbs on business to contain the coronavirus continue to undermine recovery prospects.

This week the country became the seventh in the world to register more than 100,000 COVID-related deaths.

Dozens of companies with revenue of up to 500 million euros have already expressed interest in applying for the Treasury-sponsored scheme, focusing on convertible bonds and subordinated debt as preferred options, one of the sources said.

The companies, most of which are not listed, operate in sectors spanning agri-food, manufacturing, media, the automotive supply-chain and internet technology, the source added.