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Salini Impregilo and Astaldi merger progresses 08 Aug 2019

Patrick Reynolds for TunnelTalk

Investor and court approvals helped Salini Impregilo and Astaldi move forward in their plan to merge through the Progetto Italia initiative, which aims to form an internationally competitive Italian construction conglomerate with tunnelling as a key activity. Salini Impregilo has already acquired Cossi, GLF, and Seli Overseas. Astaldi would be a major addition with more sought later (Fig 1).

Fig 1. Salini Impregilo plans major Italian infrastructure group
Fig 1. Salini Impregilo plans major Italian infrastructure group

Two separate moves first saw Salini Impregilo win investor agreement to boost funds in its goal to acquire financially-troubled Astaldi. The agreement came in on schedule on 2 August. On 5 August, Astaldi received approval to enter creditor protection – called the composition proposal - as a going concern, allowing it to work out a plan with creditors. The Court of Rome also allowed the contractor to seek fresh loans.

In a statement, Astaldi said the court decision was “based on the positive valuation of the composition proposal and plan filed by the company in compliance with the binding offer received from Salini Impregilo.”

The process places no financial burden on Salini Impregilo until Astaldi, the creditors, and the court sign off on a resolution. To that end, Astaldi has noted two significant future dates: 6 February 2020, which the court has set for a vote of creditors; and 31 March 2021, the deadline for the creditor process. The merger is subject to the process being completed. Earlier this year, Salini Impregilo said its offer is contingent on court approvals dealing with Astaldi creditor arrangements, expected in 2020.

Progetto Italia financing preparations
Progetto Italia financing preparations

During the creditor process, Astaldi is proceeding with its own financial arrangements. Given the positive context of the Salini Impregilo offer and support from creditors for the wider plan, the court allowed Astaldi to seek funding lines of €125 million in cash and €384 million in bonds.

On the same day it gained entry to creditor protection and allowance to seek funding, Astaldi announced the successful completion of a major highway project in which it is a JV partner, in Turkey, 10 months early. It is planning to sell its stake in the road concession, along with equity in other projects, to improve finances.

References

Consolidation of Italian construction contractors 18 Jul 2019

Patrick Reynolds for TunnelTalk

Salini Impregilo is in talks with Astaldi over a proposed merger to rescue Astaldi from its current financial difficulties. The merger forms part of the Progetto Italia plan by Salini Impregilo to create a major Italian construction group. The final outcome depends on regulatory authorisations, including anti-trust approvals.

Intended merger to create Italian supergroup
Intended merger to create Italian supergroup

Merging with Astaldi is the first significant step in a vision by Salini Impregilo to create an Italian contractor that is capable of pursuing large infrastructure projects of more than €250 million in value. The aim is to compete against large French and Spanish groups, TunnelTalk was told by a spokesman for Salini Impregilo. The Progetto Italia initiative involves the consolidation of the domestic Italian construction sector, which is facing economic and financial pressures.

The current offer follows talks with equity and debt holders that would be involved in the wider Progetto Italia transaction, confirming that the proposed corporate and financial structure of the tie-up is acceptable. They aim to sign binding agreements by 1 August.


Pietro Salini, CEO of Salini Impregilo, warns of difficulties in the construction sector

The funding structure of Progetto Italia involves most parties taking equity stakes, including banks, in debt-for-equity swaps. In addition, there will be two rounds of fresh stock issues to raise capital. Timing of the stock issues is yet to be decided. In the meantime, banks will provide lines of credit under the overall arrangements to cover immediate needs of Astaldi.

Among the updated points, the plan includes:

  • a cash increase by Salini Impregilo of €600 million, a quarter of which is underwritten;
  • extending payback time for debt held by Salini Impregilo;
  • a credit facility of up to €200 million for Salini Impregilo to support Astaldi in the interim period;
  • bond and cash credit facilities of €384 million and €200 million, respectively, for Astaldi;
  • a new revolving credit facility of €200 million for Salini Impregilo.

“The transaction has the characteristics of a systematic sector solution with the aim of consolidating the Italian EPC (engineering, procurement and construction) infrastructure market,” Salini Impregilo said in a statement at the time of the original merger offer. It envisages forming a leading global EPC company with revenues of about €12–€14 billion, an order book of more than €60 billion, and an employee base of more than 45,000.

Salini Impregilo has indicated that there are a few possibilities for names for the proposed combined business under the Progetto Italia initiative but none have been disclosed. In an interview, Salini Impregilo CEO Pietro Salini said new names for the combined company are being considered.

Salini Impregilo celebrates at Cityringen
Salini Impregilo celebrates at Cityringen

Tunnelling to remain a core business

The underground infrastructure sector will fit well in the future core merged business, said a Salini Impregilo spokesman. “It remains core, as always,” he added.

Salini Impregilo has a number of tunnelling contracts underway, including working with Astaldi on the Milan Metro Line 4 and the Naples-Bari high speed rail project.

Other projects include metro works in Copenhagen, Paris, Doha, and Riyadh, as well as the Milan-Genoa high speed rail scheme and the Brenner Base Tunnel. In Australia, it recently won the Snowy 2.0 hydro scheme and is working on the Perth metro.

In the USA and with its North American subsidiary, Lane, the company is involved in various sewage and metro projects, including the Lake Mead water intake number 3, two contracts on the DC Clean Rivers CSO programme in Washington DC, and Central Subway running tunnels in San Francisco. Lan

Astaldi is also engaged on the Brenner Base Tunnel and contracts on the West Link rail project in Gothernburg, Sweden.

Astaldi part of JV on Brenner Base Tunnel Mules Lot
Astaldi part of JV on Brenner Base Tunnel Mules Lot

Astaldi financial woes

Astaldi declared insolvency in the Italian courts in late September 2018. Since then the company has delayed issuing its full year 2018 financial results, pending developments with the offer from Salini Impregilo.

The start of troubles began in its 2017 financial results, when Astaldi discussed a planned capital and financial strengthening programme and asset disposals. Previous challenges had included asset write-down and payment delays in Venezuela, due to the country’s severe economic crisis. Overall, however, the net financial position had slightly improved compared to 2016.

Astaldi had previously sold its stake in the Milan’s Metro Line 5, as part of a strategic divestment programme, which also included its stake in the Chacayes hydro project in Chile. In an early 2018, the business reported further asset disposals, including its stake in the Third Bosphorus bridge and in the Gebze-Orhangazi-Izmir highway, under construction in Turkey, was also planned. Subsequent political and economic events in Turkey stalled the sale of the Turkish assets.

Several other Italian construction companies have also been reported as being in financial difficulties (Fig 1).

Fig 1. Recent media reports indicated fragility of companies in the Italian construction industry
Fig 1. Recent media reports indicated fragility of companies in the Italian construction industry

Building a national champion

While mergers typically focus on winning financial and economic gains and commonly lead to job losses, in this case Salini Impregilo says the aim is to save jobs in a step to scale-up. “In the infrastructure sector, the key to competing globally is size,” said Salini Impregilo CEO. “In Italy, there is an urgent need to create a group that can be more competitive in global markets, complete projects already underway, and save jobs and Italian know-how, as well as stabilise the financial and economic system of the country.”

He added that “new players must be big enough to be able to obtain an investment grade rating and seize opportunities in global alliances with financial sponsors on complex operations. In size, we are talking revenues of more than €10 billion.”

A history of mergers

In addition to the planned Astaldi merger, Salini Impregilo gained control of Italian tunnelling specialist Seli Overseas in late 2018. Earlier this year, it bought a majority 63.5% stake in Italian company, Cossi Costruzioni SpA, in a move “aimed at consolidating and developing its expertise in the tunnelling sector, especially in Switzerland.”

Salini Impregilo was itself formed by a merger in 2013 when Salini acquired the bigger Impregilo business. In other changes to the Italian construction sector, the long-standing TBM and tunnelling business, Seli SpA, was restructured in 2015 into three separate companies: Seli Technology, Seli Tunneling Denmark, and Seli Overseas. Salini Impregilo later bought Seli Tunneling Denmark, both firms working together on the Copenhagen Cityringen Metro. Since late 2018, Seli Overseas has been controlled through the Seli Tunneling Denmark business.

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