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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
Investment Banking Client Segments
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
11 Jan-10 UniCredit SpA FO 5.5
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
20 Jun-15 Monte dei Paschi di Siena FO 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
Investment Banking Client Segments
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
18 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
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”
19 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
Brief History of Private Equity
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
20 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
Brief History of Private Equity
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
21 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
Brief History of Private Equity
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
Venture Capital Buyouts
Brief History of Private Equity
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
23 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
$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
Venture Capital Buyouts
Brief History of Private Equity
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 $4 billion initial public offering to become one of the first
major private equity firms to list shares in its management company on a public exchange
2007-2008 subprime loans crisis and credit crunch halted the private equity boom
24 Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
Historical Private Equity Returns
25
Historical Returns to Venture Capital and Buyout Funds
Source: Cendrowski, H., Petro, L.W., Martin, J.P., Wadecki, A.A., 2012. Private Equity: History, Governance, and Operations. Wiley Finance: Module 1
(60.00)
(10.00)
40.00
90.00
140.00
190.00
240.00
1985 1989 1993 1997 2001 2005
Retu
rn (
%)
Year
Venture Capital Buyouts NYSE/NASDAQ/AMEX
2016 Rank 2016 vs. 2015 Firm HeadquartersPEI 300 Five-year Fund-
raising Total ($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
Investment Banking Client Segments
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
Total for Year 6,377
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
Total for Year 7,106
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
Total for Year 7,742
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
Total for Year 20,940
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
Total for Year 10,764
1999 ENEL Public offering 31.70 16,550
Autostrade Auction + public offering 82.40 6,722
Mediocredito
Centrale Auction 100.00 2,037
Total for Year 25,382
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
Total for Year 7,933
2001 ENI – Fifth
Tranche Accelerated block building 5.00 2,721
Total for Year 2,907
2002 Telecom Italia Placement with
institutions 3.50 1,400
Total for Year 1,498
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
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
11 Jan-10 UniCredit SpA FO 5.5
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
20 Jun-15 Monte dei Paschi di Siena FO 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
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Journal of Economic Literature