Corporate and Investment Bankingdocenti.luiss.it/protected-uploads/822/2016/09/...Product/ Market Extension Financial deals in which a multi-business company sells a division to a

Corporate and Investment Banking

Lecture 2 – Investment Banking Client Segments

1

Investment Banking Client Segments

Corporate

Financial Institutions

Private Equity & Sovereign Wealth Funds

Governments

2


Corporate & Financial Institutions

3

Corporate

Assets Liabilities & Equity

Cash

Assets

Financial Investments

Debt

Equity

Cash Management

Advisory

Acquisitions

& Disposals

Hedging

Lending

Bond

Risk Management

Convertible

IPO

Follow-on Offering

Asset and Liability Management

4

5

Asset base

Goodwill

€13.8bn goodwill of witch €8.6bn related to Endesa

acquisition.

Equity Investments (Equity method)

€607m of which €192m in JVs and €415m in

associated companies.

Non-current Financial Assets

Of which Equity investments in other companies for

€237m (10% of Bayan Resources; 7% of Echelon; 18%

Galsi; other)

Among which: a stake of 70% in Endesa, a stake of 68%

in Enel Green Power and a stake of 66% in Slovenské

elektrárne(1).

Consolidated Enel Group Subsidiaries

Source: Company report. Note: (1) Currently on sale.

6

Financial Position

Source: Company report

Net Debt Build-up (€bn)

Assets Liabilities & Equity

Cash

Loans

Financial Investments

Deposits

Equity

Financial Institutions

Cash Management

Advisory

Acquisitions

& Disposals

Hedging

Advisory

Risk Management

Hybrids

IPO

Follow-on Offering

Asset and Liability Management

7

8

Consolidated Balance Sheet

Source: Company report

Financial Assets

Held for Trading

Non-derivatives

(Debt securities, Equity

instruments, Units in

investment funds,

Loans): €42.1bn

Derivative

instruments: €48.9bn

Loans and

Receivables with

Banks Loans to Central

Banks: €21.1bn

Loans to banks:

€59.9bn

Loans and

Receivables with

Customers It includes: Current

accounts, Mortgages,

Credit Cards, Finance

leases, Factoring, etc.

Financial

Investment

It includes the

investment in

Mediobanca (8.6%)

9 Source: Company report

Deposits form

Banks

Deposits from

Central Banks:

€29.4bn;

Deposits from banks:

€81.9bn

Deposits from

Customers

Current accounts

and demand

deposits: €296.6bn

Time deposits:

€86.3bn

Loans: €59.3bn

Others: €7.55bn

Financial Liabilities

Held for Trading

Of which, Derivatives

for €46.8bn

Consolidated Balance Sheet

M&A

10

Organic Growth

(i.e.: investing in technology, new

products, new people)

Bolt-on Acquisitions

(i.e.: within the realm of a company’s existing

operations)

Alliances and Joint Ventures

Strategic Acquisitions

Firm Growth

Overcapacity Deals

Product/ Market

Extension

Financial deals in which a multi-

business company sells a

division to a financial acquirer

Geographic Roll-ups

M&A as a Substitute for

R&D

Industry Convergence

Deals

Types of M&A Transactions

e.g.: Daimler-Benz

acquires Chrysler

(1998)

Banc One buys

scores of local

banks in the 1980s

GE acquires Nuovo

Pignone in Italy

(1993)

Between 1996 and

2002, Cisco

acquires 62 IT firms

Seat-Pagine Gialle

merger with Tin.it

(2000)

AB InBev sells its

theme park division

to Blackstone (2009)

Source: Fleuriet, 2008. Investment banking explained. McGraw-Hill

1980 – 2016YTD Italian M&A Rankings by Transaction Value

11

N. Date Acquiror Target Transaction value (USD bn)

1 Jan-07 Banca Intesa SanPaolo IMI 37,6

2 May-99 Olivetti Telecom Italia 34,8

3 Oct-07 Unicredito Italiano Capitalia 29,5

4 Jun-05 Telecom Italia Telecom Italia Mobile 28,8

5 Aug-03 Olivetti Telecom Italia 27,8

6 Oct-07 Enel Endesa 26,4

7 Apr-11 VimpelCom Weather Investments 22,4

8 Nov-99 Italian government (privatizat.) Enel 18,7

9 Jan-11 Fiat (spin-off) Fiat - Auto Business 18,5

10 Nov-05 Unicredito Italiano HVB 18,3

11 Nov-00 Tin.it Seat Pagine Gialle 18,2

12 Jun-08 E. ON Endesa Italia 14,3

13 Jun-09 Enel Endesa (additional stake) 13,5

14 May-08 Monte dei Paschi di Siena Banca Antonveneta 13,2

15 Aug-05 Weather Investments Wind Telecomunicazioni 12,8

16 Dec-99 Banca Intesa Banca Commerciale Italiana 12,8

17 Oct-98 Credito Italiano Unicredito 11,0

18 Oct-04 Investors Enel 10,3

19 Jan-00 Assicurazioni Generali INA 10,2

20 Oct-05 Vodafone Omnitel 10,1

Note: as of September 2016.

ECM & DCM

Initial public offerings

Follow-on offerings

Private placements

ABBs

Corporate plain vanilla

Perpetual debt

Mezzanine finance

High-yield bonds

Structured-finance products

Collateralized debt obligations

Project finance

Debt Capital Markets

Fixed income capital

raising

12

Equity Capital Markets

Raise equity capital for companies

Source: Fleuriet, 2008. Investment banking explained. McGraw-Hill

1980 - 2016YTD Italian ECM Rankings by Amount of Proceeds

13 Note: as of September 2016

N. Date Issuer Type of transaction Amount of proceeds (USD bn)

1 Nov-99 Enel SpA IPO 16.6

2 Jun-09 Enel SpA FO 11.1

3 Oct-97 Telecom Italia SpA FO 10.9

4 Jan-12 UniCredit SpA FO 9.9

5 Oct-04 Enel SpA FO 9.5

6 Jun-97 ENI SpA FO 8.1

7 Jun-98 Eni SpA FO 7.3

8 Jun-11 Intesa Sanpaolo SpA FO 7.2

9 Jun-14 Monte dei Paschi di Siena FO 6.8

10 May-08 Monte dei Paschi di Siena FO 6.4


12 Jun-00 Finmeccanica SpA FO 5.2

13 Jul-05 Enel SpA FO 4.9

14 May-09 Snam Rete Gas SpA FO 4.7

15 Dec-00 Telecom Italia Mobile SpA FO 4.6

16 Oct-96 ENI SpA FO 4.5

17 Dec-99 Autostrade SpA IPO 4.2

18 Nov-95 ENI SpA IPO 4.0

19 Nov-10 Enel Green Power SpA IPO 3.4


Derivatives

Derivate Contracts

Definition: security whose price is dependent upon or derived from one or more underlying

assets

Usage: Hedging vs. Speculation

Provide leverage

Pure speculation

Risk management/hedging

Exposure to non-traded underlying assets (e.g.: weather)

Option (derivate contract linked to a specific condition or event)

Markets: Over-The-Counter (OTC) derivatives vs. Exchange-traded derivative contracts (ETD)

Forwards Futures Options (put/call)

Warrants

Swaps (interest

rate / currency)

Derivative Contracts Types

14

Put: ERG-LUKOIL

Call: Unicredit cashes


Private Equity & Sovereign Wealth Funds

15

Private Equity

Private Equity Investment by Age of the Portfolio Company

Definition: Equity capital that is not quoted on a public exchange. Private equity

consists of investors and funds that make investments directly into private

companies or conduct buyouts of public companies that result in a delisting of

public equity

Capital for private equity is raised from retail and institutional investors, and can be used

to fund new technologies, expand working capital within an owned company, make

acquisitions, or to strengthen a balance sheet

16 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1

Cheffins, B. R., Armour, J., 2007. The Eclipse of Private Equity. ECGI - Law Working Paper No. 082/2007. Available at

SSRN:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=982114

Angel Investing

Early Stage

Venture

Capital

Later Stage

Venture Capital Buyouts

Young Mature

Age of Firm

Private Equity

17

Typical Stages of a Private Equity Fund

Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1

Organisation/

Fund-raising

Investment

Management

Harvest

Years 0–1.5 Years 1–4 Years 2–7 Years 4–10

Private Equity

The Private Equity Process


1.25–3% annual fee

General Partners

15–25% of capital

gains (carried interest)

IPOs/Mergers/

Alliances

Equity

Provide capital

Money

Limited Partners

Pension funds

Individuals

Corporations

Insurance Companies

Foreign

Endowments

Return of principal

plus 75–85% of

capital gain

Identify and screen opportunities

Transact and close deals

Monitor and add value

Raise additional funds

Use capital

Money

Entrepreneurs

Opportunity creation

and recognition

Execution

Value creation

Harvest

Investors

Venture Capital and

Private Equity Firms

Portfolio

Companies

Gatekeepers

1% Annual Fee

Brief History of Private Equity

Private equity finance can trace its roots back to private financing of

railroad and textile mills in the 19th century

Many subsequent government programs

War Finance Corporation

1918

Granted credit to essential war industries

Advanced over $71 million

In post-war years it financed railroads and agriculture

Reconstruction Finance Corporation

1932

Lent money to “all businesses hurt by the Depression, large and small”



Smaller War Plants Corporation

1942

Assisted smaller businesses in wartime with capital expenditures

“Encouraged large financial institutions to make credit available to small enterprises”

Georges Doriot founds American Research and Development

1946

First VC firm

Famous for backing Digital Equipment Corporation

Small Business Administration

Proposed in 1952 by President Eisenhower

Created by the Small Business Act of 1953

Investment Company Act of 1958 creates Small Business Investment Company (SBIC) Program

Started because Federal Reserve found small businesses could not find the credit they needed to keep pace with technology advancements



1960s bull market helps VC firms realize harvests

Buyout arena also prospers

First LBO: Lewis Cullman and buyout of Orkin Exterminating Company

1970s was a bleak decade for private equity

Poor IPO market

Passage of Employee Retirement Income Security Act (ERISA) of 1974

“Prudent Man” rule

The end of the 1970s set the stage for growth in private equity

“Prudent Man” rule clarified

Capital Gains Tax reductions

IPO market becomes strong



Historical Venture Capital and Buyout Annual Investment Levels, 1975-1989

22 Source: Thomson VentureXperts database – Cendrowski et al. (2012); Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity:

History, Governance, and Operations. Wiley Finance: Module 1

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1975 1977 1979 1981 1983 1985 1987 1989

Investm

ents

(U

S$ in

Mill

ions)

Year



Private equity boomed throughout the 1980s

Leveraged buyout boom of the late 1980s

Mammoth takeovers such as KKR1988 acquisition of RJR Nabisco

However, returns started to plummet as more players entered the arena

Economic recession of the early 1990s also drove down returns

In the mid-1990s, investors seemed enamored with “new economy” IPOs

Venture capital skyrockets; Buyouts also began to rise

Historical Venture Capital and Buyout Annual Investment Levels, 1995-2000


$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1995 1996 1997 1998 1999 2000

Investm

ents

($m

)

Year



Dot-com bubble bursts on March 13, 2000

For several years, private equity funding levels remained low

Golden age of private equity (2003–2007)

Credit boom subsequently triggered a leveraged buyout binge

In 2007, Blackstone completed a $4 billion initial public offering to become one of the first

major private equity firms to list shares in its management company on a public exchange

2007-2008 subprime loans crisis and credit crunch halted the private equity boom


Historical Private Equity Returns

25

Historical Returns to Venture Capital and Buyout Funds

Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1

(60.00)

(10.00)

40.00

90.00

140.00

190.00

240.00

1985 1989 1993 1997 2001 2005

Retu

rn (

%)

Year

Venture Capital Buyouts NYSE/NASDAQ/AMEX

2016 Rank 2016 vs. 2015 Firm HeadquartersPEI 300 Five-year Fund-

raising Total ($m)

1 The Blackstone Group New York $59.897

2 Kohlberg Kravis Roberts New York $35.249

3 Warburg Pincus New York $28.630

4 Advent International Boston $27.010

5 The Carlyle Group Washington, DC $25.678

6 Apollo Global Management New York $24.131

7 CVC Capital Partners London $23.464

8 EnCap Investments Houston $21.128

9 TPG Fort Worth $20.709

10 EQT Partners Stockholm $18.524

11 Bain Capital Boston $17.565

12 Neuberger Berman Group New York $14.479

13 Ares Managemet Los Angeles $13.590

14 Thoma Bravo Chicago $12.323

15 Riverstone Holdings New York $12.006

16 Vista Equity Partners Austin $11.995

17 Silver Lake Menlo Park $11.150

18 Hellman & Friedman San Francisco $10.900

19 General Atlantic New York $10.709

20 Centerbridge Capital Partners New York $10.663

Top 20 Global Private Equity firms

26 Source: Private Equity International. 2016. PEI 300

The Blackstone Group

Alternative Asset Management

Private Equity

Real Estate

Hedge Fund Solutions

Credit Businesses

Closed End Funds

Financial Advisory

Blackstone Advisory Partners (M&A activity, spin-offs, private placements, structured products and other transactions)

Restructuring & Reorganization

Park Hill Group (raising capital for alternative investment managers)

27 Source: Company website

The Future of Private Equity

Four Scenarios of the Future of the Private Equity Industry

28

Constant Investor Base Turnover in Investor

Base

“Fair” Returns Recovery Back to the Future

Disappointing Returns A Brocken Industry The Limited Partners

Desertion

Source: Lerner, J., 2011. The Future of Private Equity. European Financial Management, Vol. 17:3

Sovereign Wealth Funds

Definition: state-owned investment fund or entity that is commonly established from balance of payments

surpluses, official foreign currency operations, the proceeds of privatizations, governmental transfer payments,

fiscal surpluses, and/or receipts resulting from resource exports. The definition of sovereign wealth fund

exclude, among other things, foreign currency reserve assets held by monetary authorities for the traditional

balance of payments or monetary policy purposes, state-owned enterprises in the traditional sense,

government-employee pension funds (funded by employee/employer contributions), or assets managed for the

benefit of individuals.

29

SWFs by Funding Source SWFs by Region

Source: Lerner, J., 2011. The Future of Private Equity. European Financial Management, Vol. 17:3; Sovereign Wealth Fund Institute, as of October 2015

Country Fund Name Assets $Billion Inception OriginLinaburg-Maduell

Transparency Index

Norway Government Pension Fund – Global $850 1990 Oil 10

China China Investment Corporation $814 2007 NonCommodity 8

UAE – Abu Dhabi Abu Dhabi Investment Authority $792 1976 Oil 6

Saudi Arabia SAMA Foreign Holdings $598 n/a Oil 4

Kuwait Kuwait Investment Authority $592 1953 Oil 6

China SAFE Investment Company $474 1997 NonCommodity 4

China – Hong Kong Hong Kong Monetary Authority Investment Portfolio $442 1993 NonCommodity 8

Singapore Government of Singapore Investment Corporation $350 1981 NonCommodity 6

Qatar Qatar Investment Authority $335 2005 Oil & Gas 5

China National Social Security Fund $236 2000 NonCommodity 5

UAE – Dubai Investment Corporation of Dubai $196 2006 NonCommodity 5

Singapore Temasek Holdings $194 1974 NonCommodity 10

Saudi Arabia Public Investment Fund $160 2008 Oil 4

UAE – Abu Dhabi Abu Dhabi Investment Council $110 2007 Oil n/a

Australia Australian Future Fund $95 2006 NonCommodity 10

South Korea Korea Investment Corporation $92 2005 NonCommodity 9

Kazakhstan Kazakhstan National Fund $77 2000 Oil 2

Russia National Welfare Fund $74 2008 Oil 5

Kazakhstan SamrukKazyna JSC $69 2008 NonCommodity n/a

UAE – Abu Dhabi International Petroleum Investment Company $66 1984 Oil 9

UAE – Abu Dhabi Mubadala Development Company $66 2002 Oil 10

Libya Libyan Investment Authority $66 2006 Oil 1

Russia Reserve Fund $50 2008 Oil 5

Iran National Development Fund of Iran $65 2011 Oil & Gas 5

US – Alaska Alaska Permanent Fund $54 1976 Oil 10

Top Sovereign Wealth Funds

30 Source: Sovereign Wealth Fund Institute, as of September 2016

Sovereign Wealth Fund Market Size Evolution ($bn)

31 Source: Sovereign Wealth Fund Institute, as of Septemer 2016


Governments

32

Government Privatizations

Privatization

Definition: giving up of control, by the general government over a State Owned Enterprise (SOE), primarily by the disposal of shares and other equity in this enterprise

Direct sale of financial assets

Indirect sale (the sale of shares is not done directly by the government but by a public corporation - e.g.: public holding corporation - or any kind of government agency)

Specific case: restitution of assets to former owners (in kind or through financial compensation)

33

Proceeds to Government

Benefits to Customers Extent of Competition

Source: Dupuis, J., 2005. Privatisation And Nationalisation. TFHPSA Conference paper

Government Privatizations – International Perspective

1961 Adenauer government in the Federal Republic of Germany launched the first

large-scale, ideologically motivated "denationalization" program of the postwar era

Sale of majority stake in Volkswagen; sale of a large stake in VEBA

1984-1997 Thatcher’s privatizations as a basic economic policy in the UK

British Telecom initial public offering in November 1984

A series of increasingly massive share issue privatizations between the mid 1980s and early

1990s reduced the role of SOEs in the British economy to essentially nothing after the

Tories left office in 1997, from more than 10 percent of GDP 18 years earlier

Objectives: (1) raise revenue for the state, (2) promote economic efficiency, (3) reduce

government interference in the economy, (4) promote wider share ownership, (5) provide

the opportunity to introduce competition, (6) subject SOEs to market discipline, (7)

develop the national capital market

Privatizations in France, Spain, Italy, Germany during the 1990s

Japan: few privatizations but truly enormous

The three Nippon Telegraph and Telephone share offerings executed between February

1987 and October 1988 raised almost $80 billion, and the $40 billion NTT offer in

November 1987 remains the largest single security offering in history

34 Source: Megginson W., L., Netter, J., M., 2001. From State To Market: A Survey Of Empirical Studies On Privatization. Journal of Economic Literature

Government Privatizations – International Perspective

China (late-1970s) and India (1991) privatizations

In response to highly disappointing SOE performance

In both cases it has thus far not figured prominently in the reform agenda

Latin America has truly embraced privatization

Chile’s program was the Latin America’s first - 1990 Telefonos de Chile

Mexico’s program: by June 1992, the government had privatized 361 of its roughly 1,200

SOEs and the need for subsidies had been virtually eliminated

Brazil: sold several very large SOEs (CVRD in 1997 and Telebras in 1998) but there is still

room for privatizations

Privatization in sub-Saharan Africa: a stealth economic policy (few governments have

openly adopted an explicit SOE divestment strategy)

Some exceptions: Nigeria, South Africa

After the collapse of communism in 1989-91 former Soviet-bloc started privatizing

SOEs as effort towards market economy

The cumulative value of proceeds raised by privatizing governments exceeded $1

trillion sometime during the second half of 1999 (Gibbon, 2000. Privatisation

International)

35 Source: Megginson W., L., Netter, J., M., 2001. From State To Market: A Survey Of Empirical Studies On Privatization. Journal of Economic Literature

Privatizations: XX Century Largest Share Offerings

36 Source: Megginson W., L., Netter, J., M., 2001. From State To Market: A Survey Of Empirical Studies On Privatization. Journal of Economic Literature;

Thomson Reuters. Note: (1) Indicates a group offering of multiple companies that trade separately after the IPO.

Date Company Country

Amount

($m) IPO / SEO

Nov 87 Nippon Telegraph & Telephone Japan $40,260 SEO

Sep 10 Petrobras Brazil 69,835 SEO

Oct 88 Nippon Telegraph & Telephone Japan 22,400 SEO

Jul 10 Agricultural Bank of China Ltd China 22,121 IPO

Oct 06 ICBC China 21,969 IPO

Nov 99 ENEL Italy 18,900 IPO

Oct 98 NTT DoCoMo Japan 18,000 IPO

Mar 03 France Telecom SA France 16,360 SEO

Apr 03 France Telecom SA France 16,360 SEO

Oct 97 Telecom Italia Italy 15,500 SEO

Feb 87 Nippon Telegraph & Telephone Japan 15,097 IPO

Nov 99 Nippon Telegraph & Telephone Japan 15,000 SEO

Jun 00 Deutsche Telekom Germany 14,760 SEO

Nov 96 Deutsche Telekom Germany 13,300 IPO

Oct 87 British Petroleum UK 12,430 SEO

Jul 08 Cia Vale do Rio Doce SA Brazil 12,187 SEO

May 06 Bank of China Ltd China 11,186 IPO

Jul 06 OAO Rosneft Russian Fed 10,656 IPO

Apr 00 ATT Wireless (tracking stock) US 10,600 IPO

Nov 97 Telstra Australia 10,530 IPO

Nov 98 France Telecom France 10,500 SEO

Oct 99 Telstra Australia 10,400 SEO

Jun 99 Deutsche Telekom Germany 10,200 SEO

Dec 90 Regional Electricity Companies1 UK 9,995 IPO

Dec 91 British Telecom UK 9,927 SEO

Oct 05 China Construction Bank Corp China 9,227 IPO

Nov 10 CCB Corp China 9,208 SEO

Dec 10 CCB Corp China 9,208 SEO

Nov 10 Bank of China Ltd China 8,974 SEO

Dec 10 Bank of China Ltd China 8,974 SEO

Oct 07 PetroChina Co Ltd China 8,933 SEO

Date Company Country

Amount

($m) IPO / SEO

Mar 12 Bank of Communications Co Ltd China 8,919 SEO

Sep 07 China Shenhua Energy Co Ltd China 8,871 SEO

Jun 00 Telia Sweden 8,800 IPO

May 01 British Telecommunications PLC United Kingdom 8,788 SEO

Dec 89 UK Water Authorities1 UK 8,679 IPO

Dec 86 British Gas UK 8,012 IPO

Jun 98 Endesa Spain 8,000 SEO

May 07 Bank VTB Russian Fed 7,988 IPO

Jul 97 ENI Italy 7,800 SEO

Sep 07 China Construction Bank Corp China 7,726 SEO

Apr 00 Oracle Japan Japan 7,500 IPO

Nov 05 EDF SA France 7,479 IPO

Jul 93 British Telecom UK 7,360 SEO

Jul 09 China State Constr Engineering China 7,343 IPO

Oct 93 Japan Railroad East Japan 7,312 IPO

Dec 98 Nippon Telegraph & Telephone Japan 7,300 SEO

Oct 97 France Telecom France 7,080 IPO

Jul 99 Credit Lyonnais France 6,960 IPO

Feb 94 Elf Aquitaine France 6,823 SEO

Jun 97 Halifax Building Society UK 6,813 IPO

Nov 10 ICBC China 6,750 SEO

Jun 98 ENI Italy 6,740 SEO

Sep 10 CML China 6,554 SEO

Apr 07 China CITIC Bank Corp Ltd China 6,495 IPO

Sep 04 France Telecom SA France 6,215 SEO

Nov 07 China Railway Engineering Corp China 5,877 IPO

Sep 09 Bank VTB Russian Fed 5,874 SEO

Oct 96 ENI Italy 5,864 SEO

May 94 Autoliv Sverige Sweden 5,818 IPO

Feb 08 China Railway Constr Corp China 5,706 IPO

Oct 98 Swisscom Switzerland 5,600 IPO

Jul 99 United Parcel Service US 5,500 IPO

Italian Privatization Program 1990s – early 2000s

Drivers:

The need for fiscal adjustment

The need for developing capital markets and

equity culture, also through strengthening

institutional investors and market infrastructures

Improvement in corporate efficiency

Size:

State-owned enterprises’ value added as % of

GDP declined from 19 to 2,6% in the period

1990/end-2002

Over € 120 bl. sold (1992-2003)

Methods: Trade Sale; Stable core of shareholders;

Public offering; Sale to employees

Impact of the Privatization Program (1992-2003)

37 For further information see the presentation: Policy Dialogue on Corporate Governance in China by Adolfo Di Carluccio Ministry of Economy and

Finance of Italy (Shanghai, China 25 - 26 February 2004 )

10%

20%

30%

40%

50%

60%

70%

80%

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

% GDP (LH) in €m (RH)

900,000

Market Value of partially and fully privatized companies as

% of total market capitalization (as to end - 2003)

Increase in stock market capitalization (1979 – 2003)

Partially and fully privatized

companies45%

55%

Major Italian Privatizations 1993-2002

38 Source: Goldstein, A., 2003. Privatization In Italy 1993-2002: Goals, Institutions, Outcomes, And Outstanding Issues. CESifo Working Paper No. 912

Corporation (Group) Method of Sale

Percentage

Sold

Gross

Proceeds

(€m)

1993 Italgel Private agreement 62.12 223

Cirio-Bertolli-DeRica Private agreement 62.12 160

Credito Italiano (IRI) Public offering 58.09 930

SIV (EFIM) Auction 100.00 108

Total for Year 1,422

1994 IMI – First Tranche Public offering 32.89 927

COMIT (IRI) Public offering 54.35 1,493

Nuovo Pignone (ENI) Auction 69.33 361

INA – First Tranche Public offering 47.25 2,340

Acciai Speciali Terni Private agreement 100.00 322

SME – First Tranche Private agreement 32.00 373


1995 Italtel Auction 40.00 516

Ilva Laminati Piani Private agreement 100.00 1,298

Enichem Augusta (ENI) Auction 70.00 155

IMI – Second Tranche Private agreement 19.03 472

SME – Second Tranche Accept takeover bid 14.91 176

INA – Second Tranche Private agreement 18.37 871

ENI – First Tranche Public offering 15.00 3,253

ISE Auction 73.96 191


1996 Dalmine Auction 84.08 156

Nuovo Tirrena Auction 91.14 283

SME – Second Tranche Accept takeover bid 15.21 62

INA – Third Tranche Conv. Bond issue 31.08 2,169

IMI – Third Tranche Public offering 6.94 259

ENI – Second Tranche Public offering 15.82 4,582


1997 ENI – Third Tranche Public offering 17.60 6,833

Aeroporti di Roma Public offering 45.00 307

Telecom Italia

Core investors + Public

offering 39.54 11,818

SEAT Editoria

Core investors + Public

offering 61.27 854

Banca di Roma

Public offering + bond

issue 36.50 980


Corporation

(Group) Method of Sale

Percentage

Sold

Gross

Proceeds

(€m)

1998 SAIPEM (ENI) Public offering 18.75 589

ENI – Fourth

Tranche Public offering 14.83 6,711

BNL Public offering 67.85 3,464


1999 ENEL Public offering 31.70 16,550

Autostrade Auction + public offering 82.40 6,722

Mediocredito

Centrale Auction 100.00 2,037


2000 Aeroporti di Roma Direct sale 51.20 1,327

Finmeccanica Secondary public offer 43.70 5,505

COFIRI Direct sale 100.00 504

Banco di Napoli Tender share to takeover

bid 16.20 493


2001 ENI – Fifth

Tranche Accelerated block building 5.00 2,721


2002 Telecom Italia Placement with

institutions 3.50 1,400


Total 1993–2002 92,072

Company State Holding (%) Estimated Value (€m) Difficulty Grade Major Issues

ENEL 26 10,493 Low

ENI 25 14,503 Medium Restructuring

EUR IMMOBILIARE 90 636 Low

FINCANTIERI 58 721 Low IPOed in July 2014

FINMECCANICA 30 2,301 Low

INVITALIA 100 925 Low

POSTE ITALIANE 100 3,500 High IPO in 4Q 2015

SACE 100 5,993 Low

TERNA 24 2,050 Low

CINECITTÁ LUCA S.p.a 100 34 Low

RAI 100 690 Medium Politically sensitive

ISTITUTO POLIGRAFICO Z. S. 100 524 Low

CONSAP 100 123 Low

FERROVIE Dello STATO 100 36,092 High Restructuring; Regulatory reform

SOGEI 100 124 Low

SOGESID 100 35 Medium Referendum against privatization won in June 2011

SOGIN 100 16 Medium Nuclear waste

CASSA DEPOSITI E PRESTITI 80 9,608

INAIL 100 6,000 Medium Real estate disposal ; Regulatory reform, Jobs cutting

Total 94,368

A New Season of Privatization for Italy ? Italian Government Corporate Holdings (2015)

39 Source: Factset as of 7 August 2015, Companies Reports and Websites; Notes; (1) Italian government see-through ownership.

(1)

Governments: Debt Management

Sovereign Debt Management

Definition: process of establishing and executing a strategy for managing the

government’s debt in order to:

Raise the required amount of funding

Achieve the government risk and cost objectives

Meet any other sovereign debt management goals (e.g.: developing and maintaining an

efficient market for government securities)

A government’s debt portfolio is usually the largest financial portfolio in the

country

New frontier: Asset and Liability Management (manage the business and financial

risks by matching the financial characteristics of the liabilities to the assets)

Market Risk

Rollover Risk

Liquidity Risk

Credit Risk

Settlement Risk

Operational Risk

Debt Management Risks

40 For further information see: IMF, 2001 and 2003. Guidelines for Public Debt Management

1980 – 2016TD Italian M&A Rankings by Transaction Value

41

N. Date Acquiror Target Transaction value (USD bn)

1 Jan-07 Banca Intesa SanPaolo IMI 37,6

2 May-99 Olivetti Telecom Italia 34,8

3 Oct-07 Unicredito Italiano Capitalia 29,5

4 Jun-05 Telecom Italia Telecom Italia Mobile 28,8

5 Aug-03 Olivetti Telecom Italia 27,8

6 Oct-07 Enel Endesa 26,4

7 Apr-11 VimpelCom Weather Investments 22,4

8 Nov-99 Italian government (privatizat.) Enel 18,7

9 Jan-11 Fiat (spin-off) Fiat - Auto Business 18,5

10 Nov-05 Unicredito Italiano HVB 18,3

11 Nov-00 Tin.it Seat Pagine Gialle 18,2

12 Jun-08 E. ON Endesa Italia 14,3

13 Jun-09 Enel Endesa (additional stake) 13,5

14 May-08 Monte dei Paschi di Siena Banca Antonveneta 13,2

15 Aug-05 Weather Investments Wind Telecomunicazioni 12,8

16 Dec-99 Banca Intesa Banca Commerciale Italiana 12,8

17 Oct-98 Credito Italiano Unicredito 11,0

18 Oct-04 Investors Enel 10,3

19 Jan-00 Assicurazioni Generali INA 10,2

20 Oct-05 Vodafone Omnitel 10,1

Note: as of September 2016

1980 - 2015YTD Italian ECM Rankings by Amount of Proceeds

42 Note: as of September 2016

N. Date Issuer Type of transaction Amount of proceeds (USD bn)

1 Nov-99 Enel SpA IPO 16.6

2 Jun-09 Enel SpA FO 11.1

3 Oct-97 Telecom Italia SpA FO 10.9


5 Oct-04 Enel SpA FO 9.5

6 Jun-97 ENI SpA FO 8.1

7 Jun-98 Eni SpA FO 7.3

8 Jun-11 Intesa Sanpaolo SpA FO 7.2


10 May-08 Monte dei Paschi di Siena FO 6.4


12 Jun-00 Finmeccanica SpA FO 5.2

13 Jul-05 Enel SpA FO 4.9

14 May-09 Snam Rete Gas SpA FO 4.7

15 Dec-00 Telecom Italia Mobile SpA FO 4.6

16 Oct-96 ENI SpA FO 4.5

17 Dec-99 Autostrade SpA IPO 4.2

18 Nov-95 ENI SpA IPO 4.0

19 Nov-10 Enel Green Power SpA IPO 3.4


References

43

Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations.

Wiley Finance: Module 1 (chapters 1-5)

Das, U.S., Papapioannou, M., Pedras, G., Ahmed, F., Surti, J., 2010. Managing Public Debt and Its Financial Stability

Implications. IMF Working paper

Fleuriet, 2008. Investment banking explained. McGraw-Hill: chapter 4, 18

Fraquelli, G., Erbetta, F., 1999. Privatization in Italy: an analysis of factors productivity and technical efficiency.

Ceris-CNR, Working Paper. No. 5/1999

Goldstein, A., 2003. Privatization In Italy 1993-2002: Goals, Institutions, Outcomes, And Outstanding Issues .

CESifo Working Paper No. 912

IMF, 2001 and 2003. Guidelines for Public Debt Management

Lerner, J., 2011. The Future of Private Equity. European Financial Management, Vol. 17:3

Megginson W., L., Netter, J., M., 2001. From State To Market: A Survey Of Empirical Studies On Privatization.

Journal of Economic Literature

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