UPDATE 2-Italy to sell energy grid stake to China for 2 bln euros

Thu Jul 24, 2014 7:50am EDT

* CDP in talks to sell 35 pct in CDP Reti to China grid

* China grid investment could be worth about 2 bln euros

* CDP Reti disposal part of a privatisation drive (Adds minister's quote, analyst comment, details)

By Francesca Landini and Luca Trogni

MILAN, July 24 (Reuters) - Italy's Cassa Depositi e Prestiti (CDP) said on Thursday it was in advanced talks to sell a 35 percent stake in energy grid holding company CDP Reti to China's State Grid Corp in a deal that could be worth some two billion euros.

CDP Reti, wholly owned by CDP, owns a 30 percent stake in gas transport group Snam and will soon receive a similar stake in power grid Terna.

CDP gave no financial details of the deal but Italy's Economy Minister Pier Carlo Padoan said the transaction could be worth about 2 billion euros, making it one of the biggest Chinese investments in Italy.

The planned sale is part of Italy's efforts to sell off state assets to help reduce the country's public debt and to raise funds to invest in infrastructure projects.

CDP is negotiating with State Grid International Development Ltd (SGID), a wholly owned subsidiary of China's state grid, the state lender said in a statement, confirming what sources told Reuters on Monday.

"CDP has admitted SGID to the final stage of the auction procedure started in December 2013," CDP said.

The state lender's Chairman Franco Bassanini said at a press briefing in Beijing that the agreement would likely be signed by the end of July.

Italy has been urging China to invest more in Italy for a number years and Prime Minister Matteo Renzi visited the country last month to encourage investment.

Power and gas networks have become an attractive asset class in recent years as their return is regulated by governments, giving investors a predictable source of income even when the economy is struggling.

With the purchase of a stake in CDP Reti, State Grid Corp, which distributes power to 1.1 billion people across nearly 90 percent of China, would gain access to a stable flow of dividends, an analyst said.

"The State Grid of China is keen to invest in CDP Reti because its holdings in Terna and Snam are assets regulated by the state, with a stable cash flow generation," said Mediobanca Securities's analyst Javier Suarez, adding that this was very attractive at a time of low interest rates in Europe.

Investment bank Lazard is advising CDP on the sale, while State Grid Corp. of China has hired Morgan Stanley as financial adviser.

STATE SALES

The deal adds to a series of European infrastructure acquisitions by cash-rich Chinese groups whose investments have ranged from the port of Piraeus in Athens to stakes in Thames Water in Britain and Portugal's power grid operator REN.

In Italy, the People's Bank of China (PBOC) acquired stakes of around 2 percent in Italian state-owned energy companies Eni and Enel in March, worth 1.5 billion euros and 825 million euros respectively at current market prices.

In May, Shanghai Electric Group paid 400 million euros to buy a 40 percent stake in power engineering company Ansaldo Energia.

Italy's Treasury, which owns 80 percent of CDP, has pledged to raise around 11 billion euros from disposals this year but has so far pocketed nothing.

The state lender's initial plan envisaged the sale of up to 49 percent of CDP Reti to raise some 3 billion euros.

But some international investors who had originally expressed interest in the grid assets later backtracked due to concern over governance issues and that it would be difficult to sell a stake in CDP Reti at a later date since it is not listed.

CDP will now seek to sell a series of smaller stakes to funds to meet the 49 percent target, according to sources.

On Wednesday sources told Reuters CDP Reti would receive a loan of around 1.5 billion euros prior to the sale to pay a special dividend to its parent company and to reduce the price tag as an incentive for China's state grid.

It is unclear at this stage whether CDP will pass on part of the cash payment to the Italian government, which is trying to cut the world's fourth-largest public debt pile. ($1 = 0.7435 Euros) (Additional reporting Agnieszka Flak and Stephen Jewkes,; Editing by David Clarke)

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