Increasing equity and declining financial debt: the impact on the capital structure and financial balance of Italian SMEs under the control of Chinese shareholders is noticeable already one year after the trasanction. The leverage ratio (measured as the ratio between net financial debt and EBITDA) improves to 1.9x from 5.7x before the acquisition. Similarly, the net debt on equity decreases to 0.5x from 1.9x. The benefits on the operating profitability are less evident.
The topic about the foreign investments in Italy is gaining importance, also as a driver that can potentially support the anemic growth of the domestic economy. To this end, a gradually growing role is covered by the emerging economies that in recent years have shown greater dynamism in terms of foreign investments. Among these, the People's Republic of China (‘PRC’) certainly represents the lion’s share, as it became for the first time in 2015 a net investor, thanks to the significant growth of investments flowing out the country that exceeded the foreign investments in China.
Behind the United Kingdom and Germany, Italy is the third European country in terms of Chinese investments, that reached EUR 12.8bn in 2016. The targets of the Chinese groups’ strategies are not only large corporation like Pirelli, recently re-listed on the Milan capital market through the largest Initial Public Offering (IPO) realized in 2017 in Western Europe. Interestingly, the scope of Chinese investments has progressively extended to many small and medium enterprises (SMEs) that represent the backbone of the Italian economy.
From the perspective of a domestic rating agency, CRIF Ratings has conducted a research aimed at verifying the impact of Chinese investments on the financial profile of a sample of Italian SMEs. In particular, the sample comprised 40 companies with a turnover below EUR 500m, where Chinese groups acquired the majority of the capital between 2010 and 2015. The sample analyzed is a fraction of the entire universe of Italian companies acquired by Chinese investors; this is due to the fact that CRIF Ratings’ study excluded (i) large corporations (with a turnover above EUR 500m), (ii) investments into minority stakes, (iii) acquisitions occurred outside the 2010-2015 period and (iv) all the transactions that took place through the subsidiaries of Chinese groups domiciled outside the PRC.
Two-thirds of the SMEs’ sample belong to the manufacturing sector, mirroring the long term investment policies suggested by the Chinese government. Within the Italian manufacturing industry, the sub-sectors that sparked the greatest interest among Chinese investors are the instrumental machinery, in particular robotics, and the auto components.
The research highlights the remarkable benefits on the financial and capital structure of the companies included in the sample, already one year after the entry of the new Chinese majority shareholders. At aggregate level, the companies analyzed showed a reduction of the financial leverage, measured by the ratio between net financial debt and EBITDA, to 1.9x one year after the acquisition year from 5.7x in the pre-acquisition year. Likewise, the ratio between net financial debt and equity improved to 0.5x from 1.9x.
Associate, Corporate Ratings
Junior Rating Analyst, Corporate Ratings