EXCLUSIVE Italy annuls sale of military drones firm to Chinese investors, sources say

3 minute read

Italian Prime Minister Mario Draghi holds his end-of-year news conference in Rome, Italy, December 22, 2021. REUTERS/Remo Casilli

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  • Tax police say deal was predatory investment in technology
  • Government has imposed fines, source says
  • Draghi has blocked four Chinese forays in 13 months
  • Parliament urging government to strengthen anti-takeover powers
  • Rules have triggered legal challenges, increased red tape

ROME, March 10 (Reuters) - Italy on Thursday annulled the sale of a military drones company to Chinese investors, three government officials told Reuters, the latest in a series of moves by Prime Minister Mario Draghi to curb Beijing's forays into the euro zone's third-largest economy.

The government opened an investigation last year into the 2018 sale to the Chinese players of a 75% stake in Alpi Aviation, based in northern Italy.

Rome decided to annul the deal after the probe concluded that those involved should have informed the government about the transaction under Italy's so-called "golden power" regulations aimed at shielding strategically important assets.

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The decision was ratified at a cabinet meeting on Thursday, the sources said. Prime Minister Mario Draghi's office declined to comment.

The case showed how easy it is for changes in corporate ownership to slip under the radar at a time when pressure is rising in the United States and Europe to monitor potential risks to national security from Chinese investors.

The Chinese groups involved in the takeover are China Corporate United Investment Holding (CCUI) and CRRC Capital Holding, which are in turn controlled by the Management Committee of Wuxi Liyuan Economic Development Zone and SASAC.

A request for comment sent to these groups went unanswered outside of business hours. The Chinese embassy in Rome was not available to comment.

The operation was conducted through a chain of investment vehicles originating from a Hong-Kong based firm called Mars, which holds 75% of Alpi Aviation.

As well as annulling the deal, the Italian government has also imposed fines on those involved, one of the officials told Reuters, without giving details.

PREDATORY INVESTMENT

The case became public in September, when Italian tax police disclosed they were looking into a possible breach of rules regarding the sale of military materials, saying six people were under investigation.

Police at that time said the deal was "clearly" a predatory investment in technology.

The lawyers for Alpi Aviation declined to comment. They had previously said the sale of the stake was transparent and complied with all regulations.

Italy's use of its golden power usually results in deals being approved with recommendations intended to preserve national interest.

Since the golden power was introduced in 2012, government authorities have actually blocked foreign forays into Italy just six times. Five of these headed off Chinese bids, and four have come since Draghi took office 13 months ago. read more

Alpi Aviation's case prompted Italy's parliamentary committee on national security (COPASIR) to urge the government to strengthen the golden power.

"Rome should create a body similar to the Committee on Foreign Investments in the United States (CFIUS), which actively investigates any market deal deemed of strategic importance and not only notified transactions," COPASIR member Enrico Borghi told Reuters.

However, the increasing use of golden powers has triggered legal challenges from both Chinese investors and their Italian prey.

It has also increased red tape for firms which are informing the government of any mergers to avoid possible infractions and fines, even when this would not be necessary. read more

Last year the number of notifications jumped to almost 500, compared with 342 in 2020 and just 83 in 2019, said one of the officials. More than 40% of the notifications in 2021 regarded operations in non-strategic firms.

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Reporting by Giuseppe Fonte, Angelo Amante and Gavin Jones; Additional reporting by Emilio Parodi in Milan; Editing by Nick Macfie

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