Equity preferable to finance under uncertain Italian conditions

The International Monetary Fund (IMF) has conducted its five-year survey of the Italian financial system, its first since the global financial crisis. And whilst the IMF declared Italy’s banking sector to have ‘shown remarkable resilience in the face of a severe and prolonged recession at home and a major crisis in Europe, the baseline outlook for the economy remains weak and the financial system is still vulnerable.’

“If downside risks to this baseline materialise, the impact on banks could be significant, albeit substantially cushioned by their own capital buffers and the availability of liquidity from the European Central Bank”, explained Dimitri Demekas, an assistant director in the IMF’s monetary and capital markets department. Demekas had headed the team that conducted the Italian assessment.

The major threat to the Italian corporate sector that the report highlights will provide grim reading for those companies that have guided their way through the crisis on a wave of finance. As the report states, ‘[t]he lacklustre economic outlook and the large exposure to the highly leveraged Italian corporate sector keep credit risk rising and put pressure on bank profits.’ The report also warns that the ratio of non-performing loans to total loans has tripled since 2007, and now stands at 13.4 per cent.


For a sector where utilising finance to bankroll projects is an increasingly common practice, as projects get larger and more expensive, uncertainty among lenders is never encouraging. And in the absence of a capital cushion, outside investment is key. This happened most prominently within the Italian superyacht market when the Shangdong Heavy Industries Group rescued the heavily leveraged Ferretti Group. And as Ed Sacks, who is heading Italian builder ISA’s American operation, explained sometimes it can benefit a yard to have a relatively anonymous owner, who plays little involvement in the daily operations of a niche business. Owned by the private equity firm Yachting Investors Group, based in London, ISA is enjoying a busy period. “The owner may or may not want to write cheques, but there is that capability”, Sacks said. “It’s not that there’s any assiduous avoidance of involvement but this is primarily an investment.”  

Likewise, on board entertainment specialist Videoworks has traversed the torrid economic conditions by playing the long game and making incremental investments. And like ISA, the company is now looking beyond its own market towards more stable regional sectors. The company's marketing and communication manager, Sara Stimilli told SuperyachtNews.com:

“Despite the critical economic [period] in Europe and in Italy, Videoworks Spa, a small Italian Company, continues investing in research and development and in the creation of new technologies for its three areas of expertise: 'yachting', 'conference' and 'smart home'. For 20 years the company has worked with the most important Italian shipyards for the 40m-plus market - a segment that has undergone less of a crisis in Yachting World.

"The reliability of Videoworks is its solidity and the quality of its products, which have allowed the company to continue working with some regularity, whilst waiting patiently for the return of the ordinary procedures. In that difficult period Videoworks is trying, hopefully with success, to open new markets like China, USA, Russia and Turkey. Videoworks' strategy is flexibility, reliability, the ability to listen the needs of its clients and always try to give the best”.

Ed Sacks is interviewed in issue 148 of The Superyacht Report.

Profile links

Ferretti SpA

ISA

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