Good prospects for Italy's Stock Market

UNCLAS SECTION 01 OF 02 MILAN 000077 SIPDIS TREAS FOR HULL STATE PASS CEA USDOC 4212/ITA/MAC/OEURA/CPD/DDEFALCO E.O. 12958: N/A TAGS: EFIN EINV ECON IT EUN SUBJECT: Good prospects for Italy's Stock Market REF: Rome 449 Increase in Request for New Listings -------------- ¶1. Data from February indicates that 2006 will see an increase in new listings for the Italian stock market (Borsa Italiana) over 2005. The Borsa saw 19 new listings last year, already the highest number of new listings since 2000. This included 15 IPOs and 4 spin-offs, incorporations, or re-listings of existing floating capital (Parmalat). So far this year 24 companies have requested CONSOB, Italy's SEC equivalent, to authorize their listing. The majority of these are small and mid cap companies from a diverse range of sectors including oil (API and Saras),food (Valsoia),jewelry (Stroili Oro), scooters (Piaggio) and ceramic tiles (Marrazzi). ¶2. The Borsa currently has a total of 282 listed companies with a market capitalization of 681 billion euros -- equivalent to approximately 50 percent of Italy's GDP. In 2005 Borsa Italiana ranked third in Europe with a record trading volume of 2,000 billion euros. While it is still too early to tell if all 24 companies will actually complete the listing process, the increasing numbers reveal a positive potential for growth in the Italian equity market. We believe the increase in listings is a combination of stronger capital market conditions and recent performance combined with the beginnings of a cultural shift that seems to see Italian businessmen becoming less reluctant to list family-owned companies in the face of need for growth capital in order to remain competitive in an increasingly global market. Public listing has also turned out to be a viable option for some first or second-generation entrepreneurs facing succession problems due to lack of an apparent family heir. (Note: Listings in 2005 were all oversubscribed.) Potential Changes in Borsa's Future -------------- ¶3. Even the Borsa Italiana itself, currently controlled by a group of Italian and foreign banks, may be joining the list of future IPOs. The move was made easier following Parliament's recent passage of an oversight law (legge sul risparmio) through increased transparency, improved corporate governance and stronger rules preventing conflicts of interest (reftel). Borsa Executive Director Massimo Capuano has been championing the idea as a way to facilitate the Milan Stock Exchange joining any eventual consolidation of European exchanges. Capuano first moved Borsa Italiana in this direction in 2005 by joining "Euronext," an arrangement under which a number of European exchanges, including Paris, Amsterdam, Brussels and Lisbon, have agreed to have a single market for trading government issued bonds. Capuano fiercely defends the Borsa's potential to be an international player in the European scene, but recognizes that it will first be required to go public before it is allowed to purchase another stock exchange (as other major stock exchanges have done in Europe in recent years). Looking to Attract US Investors -------------- ¶4. We recently met with Capuano to discuss the Borsa Italiana's upcoming plans to host a conference in New York in early April introducing approximate 30 of Italy's largest publicly traded companies to American investors. The Borsa will host a similar conference featuring several small and mid-cap companies in late May. While the Borsa has previously organized similar events in New York and Boston, Capuano suggested that he is particularly interested in expanding the outreach to other major cities on the West Coast, in particular to California. He has requested our assistance in helping to provide key contacts in the California financial market, with whom the Borsa might begin exploring the possibility of arranging a future event. Consulate Milan is coordinating a response to the request with Embassy Rome in the context of Mission Italy's "Partnership for Growth" project. DGraze