Italy may sell its 30% stake in Eni to settle cash flow problems, pay off debts

Italy could soon sell its stake in Eni, a multinational oil and gas company headquartered in Rome, to address its cash flow problems and pay down debts, according to reports gleaned from oil.com.

“The idea is to get as much as possible as soon as possible, to cut the public debt causing the least possible political impact,” a source said.

The Italian government’s cash flow problem is chronic though less related to the health of the world’s energy markets: Italy, Greece, and Spain have been grappling with slow economic growth and high unemployment since the global economic recession of 2008.

To this end, Italy’s financial goal for 2017 involved raising 3.4 billion euros to pay off public debt, an amount totaling to 130 percent of the national gross domestic product. So far, Rome is far behind on that fundraising agenda.

However, the price of the stake in Eni has yet to be determined and officials from Rome have declined to comment on the proposal. The Italian Treasury owns 4.34 percent of Eni.

Eni, considered one of the global supermajors, is currently world’s 11th largest industrial company with a market capitalization of 68 billion euros (US$ 90 billion), as of August 14, 2013.

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The Italian government owns a 30.303 percent golden share in the company, including 3.93 percent held through the state Treasury and 26.369 percent held through the Cassa Depositi e Prestiti, while another 2.012 percent of the shares is held by the People’s Bank of China.

The company is a component of the Euro Stoxx 50 stock market index.[5]

Oil and gas companies themselves have faced tough financial times in recent years as barrel prices hover in the $55-$60 range, compared to pre-2014 heights of over $100. In 2015 and 2016, analysts and credit watchers began asking tough questions about the sustainability of the generous shareholder payouts.

Eni became the first to reduce its dividend in 2015. BP offered a scrip dividend to its shareholders, a half-measure that offers equity instead of cash. Statoil did the same.

But times have changed, and the oil majors have made a lot of progress in cutting costs and improving their financial health. The results are evident. BP and Statoil just announced in recent days that they would end their scrip dividend program and pay cash to shareholders. BP even said it would repurchase shares equivalent to the amount it issued during its scrip program.