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A 1.5b-euro bet to rebuild Italy's construction sector
ITALY'S construction industry is crumbling after years of recession and bad investments, but now the sector's biggest player is betting it can be rebuilt.
Salini Impregilo, whose projects have included expansion of the Panama Canal to a new subway line in Riyadh, plans to create a 1.5 billion euro (S$2.28 billion) construction hub dubbed "Progetto Italia" (Project Italy), that would combine its assets with those of several ailing Italian builders such as Astaldi.
Italy's construction industry, the fourth largest in Europe, is reeling from years of sluggish economic growth, government spending cuts on infrastructure and foreign ventures gone sour.
In the last decade alone, about 600,000 jobs have been wiped out as 120,000 builders collapsed, according to data compiled by the Italian industry association Ance.
"With Project Italy, we want to create a larger industry player by bringing together the forces of the country's two biggest companies," Salini's chief executive officer Pietro Salini told analysts on an earnings conference call in May.
Acquiring Astaldi, the failed construction company under administration, will be the first building block in Salini's hub. Under Salini's rescue plan, the Milan-based company will invest more than 1.2 billion euros through a combination of a capital increase and financing by banks.
But the initial plan to solely focus on absorbing Astaldi's orders portfolio and debt wasn't backed by Cassa Depositi e Prestiti (CDP), which asked Salini to go back to the drawing board and include other struggling builders such as Condotte and Trevi Finanziaria Industriale.
After months of talks, Italy's state lender is said to be ready to commit as much as 250 million euros to finance part of the deal, according to two people close to the deal that asked not to be named.
On top of asking Salini to include in the deal many of Italy's largest ailing builders, CDP also wants to appoint five out of 15 members of the new entity's board. Also, an independent committee would be created to try and attract new investors. Salini has until July 15 to present its formal bid for Astaldi and detail its plans.
Salini's goal of creating a stronger Italian building industry that can compete internationally makes sense, said Filippo Monge, adjunct professor of construction economics at the University of Turin. Italy's 10 largest contractors already generate 70 per cent of their revenue outside their home market.
"It's necessary to have a national champion to be able to compete globally," he added. BLOOMBERG