Italy Jewelry IPO Shelved as Vote Threatens Investments

Pomellato SpA, the Italian jeweler whose trinkets have been worn by actress Tilda Swinton, intended to sell shares in an initial public offering as soon as next year to fund expansion. After Italy’s election produced a hung parliament, that plan is on hold.

“It forces us to look into alternative courses of action, you have to look at other sources of capital,” Andrea Morante said today on Bloomberg Television’s “The Pulse” with Francine Lacqua. “There was wishful thinking that these elections could bring about stability in the political outlook, that wishful thinking has been proven wrong.”

Italy’s inconclusive election, which renewed market tension over Europe’s debt crisis, will probably propel companies to change investment strategy as consumers curtail spending amid the fourth recession since 2001. Even before the vote, the European Commission forecast the country’s economy will shrink 1 percent this year after a 2.2 percent decline in 2012. Unemployment is at a 13-year high of 11.2 percent.

“Gridlock in parliament means gridlock in the economy,” Alberto Gallo, an analyst at Royal Bank of Scotland in London, wrote in a note to clients today. “With political uncertainty around key laws and reforms, companies are less likely to hire and invest and banks are less likely to make new loans.”

Rising Costs

Fiat SpA, Italy’s largest manufacturer, may be among the companies hardest hit by the political turmoil. The automaker’s car sales in Italy accounted in January for more than half of European deliveries. The Turin-based carmaker controlled by the Agnelli family will pay higher interest rates on its debt and may battle a further sales contraction in the country, which fell last year to the lowest in more than 30 years. Fiat declined to comment today on the election results.

“I pay a spread on top of the Italian spread because I’m Italian based,” Sergio Marchionne, chief executive officer of Fiat and Chrysler Group LLC, told reporters Dec. 20 at the company’s car plant in the southern city of Melfi. Italian stocks tumbled in Milan today, with Fiat dropping as much as 5.8 percent to 3.9 euros.

Credit-default swaps insuring Fiat against default climbed 56 basis points to 616 at 11:55 a.m. in London, the highest level in a month and the biggest same-day move since April, data compiled by Bloomberg show. An increase signals deterioration in perceptions of credit quality.

The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros ($13.1 million) of debt for five years is equivalent to 1,000 euros a year.

Tax Increases

Italy’s borrowing costs rose to the highest in almost four months after the treasury auctioned 8.75 billion euros of six-month bills today.

The election outcome intensifies the risk of tax increases for Italian utilities, even with the average rate already at 40 percent compared with the European average of 28 percent, according to Bloomberg Industries.

The emergence of a populist-oriented government may result in a realignment of austerity measures from consumers to corporations, such as the extension of the so-called Robin Hood tax on utilities created in 201O, according to Bloomberg Industries analyst Chris Rogers. A2A SpA, Italy’s biggest municipal utility, dropped as much as 9.4 percent in Milan.

Telecom Italia’s refinincing strategy could be at risk give the political uncertainty, according to Kepler analyst Enrico Coco. The company will wait for more “stable and favorable market conditions” before selling a hybrid bond of as much as 3 billion euros, CEO Franco Bernabe said today in an interview with Il Corriere della Sera.

Fiat Plan

To stem mounting losses in Europe as its market share dwindles, Fiat intends to transform underused factories into export hubs for more expensive vehicles from Jeep, Alfa Romeo and Maserati. Marchionne had asked Premier Mario Monti’s government last year to reduce the corporate tax rate on vehicles exported from Italy in order to competitively build cars in the country for North America.

“Whoever wins the election in February, I sincerely hope, resurrects this plan because it is important not just for Fiat, but anybody who is operating assets in this jurisdiction,” Marchionne said Jan. 30 on a conference call with analysts.

Renewed Uncertainty

That won’t happen soon. Italy’s recession-scarred voters repudiated budget rigor and made Beppe Grillo, a former comedian, a political force. In the four-way race, Bersani, the pre-election favorite, won the lower house by less than a half a point. Former Prime Minister Silvio Berlusconi, fighting a tax-fraud conviction and charges of paying a minor for sex, called for a recount and won a blocking minority in the Senate.

Berlusconi and Grillo, the candidates running to reverse the austerity implemented by incumbent Monti to contain the region’s financial crisis, scored about 55 percent of the popular vote.

“The uncertainty renews our worries about the future,” Filippo Pavan Bernacchi, head of the country’s car dealers association, said in an interview. “We’ll stay at the bottom of the crisis for a longer period.”

Auto sales in the country, which could have started a recovery with a “strong” government, may fall about 5 percent this year to 1.3 million vehicles, Bernacchi estimates. More spending cuts, though, are also not the answer, he said.

“On the other side, austerity measures killed the car sector in this country, so they must be canceled,” said Bernacchi, who forecasts that the Italian dealer network shrank by 20 percent since the crisis started in 2008.

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