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Financials

Italy to launch fund for virus-hit firms with initial 3 bln euros, govt sources say

* Government pledges 40 bln euro fund to support key industries

* New recapitalisation scheme to be managed by state lender CDP

* Fund’s capital injections will push up Italy’s huge public debt

ROME, May 12 (Reuters) - Italy will launch a new equity fund financed with an initial 3 billion euros ($3.6 billion) to help its coronavirus-hit companies raise capital, two government officials said.

The new fund, dubbed “Patrimonio Rilancio”, will be financed mainly through dedicated debt issues and operate as a special purpose vehicle managed by state lender and equity investor Cassa Depositi e Prestiti (CDP).

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

Economy Minister Daniele Franco has signed off on a decree enabling the issuance of a first tranche of 3 billion euros in bonds, which CDP can use as collateral to raise liquidity on the market, one of the officials said.

The Treasury has pencilled in 24.5 billion euros in debt issues linked to Patrimonio Rilancio this year, but it will use part of the money for a different purpose - buying the export agency SACE from CDP in a deal worth 4.25 billion euros.

Bonds for Patrimonio Rilancio will total another 19.5 billion euros in the following two years, the Treasury said in its Economic and Financial Document (DEF) published in April.

Italy’s public debt, proportionally the highest in the euro zone after Greece, reached a record 155.6% of GDP at the end of 2020 and the DEF forecasts it will climb to 159.8% this year, the highest level in Italy’s post-war history.

Taking advantage of the European Union’s more flexible approach to state aid in the face of the COVID-19-induced recession, the fund targets non-financial businesses in acute difficulties with revenues of more than 50 million euros.

The support will be provided through capital injections, bonds that convert into shares, or subordinated debt, which ranks below senior debt when it comes to repayment.

The CDP can also use the fund’s money to support healthier companies alongside private investors, as well as buy stakes in listed companies deemed of strategic importance. ($1 = 0.8280 euros) (Reporting by Giuseppe Fonte, editing by Gavin Jones; Editing by Hugh Lawson)

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