April 11, 2017 / 2:32 PM / in 7 months

UPDATE 1-Italy studying asset sales to state lender to cut debt - source

(Recasts lead, adds background)

By Valentina Za

MILAN, April 11 (Reuters) - The Italian Treasury could sell off stakes in some big publicly-controlled companies to state lender Cassa Depositi e Prestiti (CDP) to help cut the country’s huge public debt, a source said on Tuesday.

Italy has the euro zone’s highest debt pile after Greece as a proportion of national output, and had been looking for ways to sell stakes in public companies to help it meet its budgetary commitments to the European Union.

But as politicians look ahead to elections early next year, the appetite for selling assets is waning.

Last year Italy sold less than a fifth of its target and is expected to fall short again this year, with senior members of the ruling Democratic Party voicing doubts over whether privatisations are a good idea at all.

That leaves Economy Minister Pier Carlo Padoan struggling to find alternative ways of raising money to cut a national debt that stands at almost 133 percent of gross domestic product.

The source, who spoke on condition of not being named, said Italy is studying a deal that would see CDP pay for the Treasury stakes by issuing preference shares that would then be sold to institutional investors.

The deal, dubbed “Capricorn”, could raise at least 20 billion euros for Italy’s state coffers, the source said, without saying which companies might be involved.

The Treasury declined to comment.

Italian newspapers have reported the government could sell stakes it owns in Poste Italiane and Enel, among others, to CDP by the end of this year.

Italy also has stakes in oil major Eni and defense group Leonardo and owns the state railways which it had planned to partially privatise.

Earlier on Tuesday a senior Treasury official said the government was working with CDP to study options to cash in on state-owned assets.

The Treasury owns 83 percent of CDP but, crucially, the state lender’s assets are not considered part of the public accounts. Nonetheless, critics of the operation say that selling state assets to a publicly owned body amounts to no more than window dressing.

The government is due to approve new economic targets on Tuesday, together with emergency measures worth 3.4 billion euros to rein in this year’s budget deficit. A source said the CDP operation would not be discussed.

$1 = 0.9422 euros writing by Stephen Jewkes, editing by Silvia Aloisi and Gavin Jones/Jeremy Gaunt

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