Italy strips China’s Sinochem of its influence as Pirelli’s biggest investor

Italy has stripped China’s Sinochem of its influence as the largest shareholder in Pirelli, stripping it of the right to appoint its chief executive or set the tire maker’s strategy in response to concerns about Chinese state interference.

Italian Prime Minister Giorgia Meloni’s government has cited national security concerns about the potential for misuse of Pirelli’s chip technology, as well as Chinese Communist Party interference, to justify the new restrictions on Sinochem, which owns a 37 percent stake in the business.

The details of the restrictions come after an unprecedented announcement by the Italian government on Friday evening that it would impose a “network of measures to ensure Pirelli̵[ads1]7;s independence”.

The government order, which has been seen by the Financial Times, gives Camfin – the private investment vehicle of Pirelli chief Marco Tronchetti Provera, which owns 14 percent of the company – indefinite right to appoint the chief executive.

Sinochem, which owns its stake through China National Rubber Company, will also be barred from involvement in decisions on Pirelli’s “mergers and acquisitions, sales, spin-offs or listings of financial instruments”, according to the order.

Under a previous shareholder agreement between Sinochem and Tronchetti Provera, which has run the company since 1992, the CEO had the right to choose his successor.

But Sinochem had proposed a new deal that eliminated that provision, amid rising tensions between Tronchetti Provera and his Chinese partners. This updated agreement was presented to the Italian government in March, triggering a review.

Italy’s sweeping “golden power” over investments in strategic national assets allows it to veto acquisitions, force stake sales or impose other restrictions on foreign investors in certain assets. At the time of Sinochem’s Pirelli investment in 2015, these powers were not so extensive and the deal was not subject to a national security assessment.

On Friday, the government said it wanted to ensure Pirelli’s independence and leadership, amid allegations that the Chinese Communist Party was trying to exert tighter control over its operations.

Sinochem has so far declined to comment on the measures, and lawyers say Beijing is still assessing the decision and its implications. Pirelli declined to comment but is expected to release a statement later on Sunday.

A senior Italian official familiar with the matter described Rome’s intervention as “minimal”, in light of the possibility that the government could have ordered Sinochem to reduce its stake in Pirelli or even sell out entirely.

“I think they will be relieved to hear that their shares have not been touched,” the official said, noting that Sinochem also retains its representation on Pirelli’s board.

However, Rome has also mandated that Pirelli appoint another Italian national, controlled by the Italian government, to the board to ensure that the rulings are followed.

It has also asked Pirelli to refuse all requests from China’s state-owned Assets Supervision and Administration Commission of the State Council, including information sharing. The two companies will also have to keep their treasury and cash pooling functions separate.

Sinochem has been ordered to refrain from any intervention that might suggest Pirelli’s decisions are “a consequence of orders” from Beijing.

Michele Geraci, who as undersecretary of Italy’s Ministry of Economic Development pushed for Rome to join Beijing’s Belt & Road Initiative, warned that the intervention in Pirelli would “annoy” Beijing, and increase the risk for Italian companies operating in China.

“[China] will show displeasure and displeasure in words, but they are smart and do not reciprocate immediately, in a clear and visible way, said Geraci. “But when an Italian company has problems in China, it will pay the price for the Italian government’s decision.”

He added that the rationale for the intervention seemed unconvincing.

“This golden power thing is driven by the need of Meloni and [finance minister Giancarlo] Giorgetti to be seen as anti-China, pro-US and pro-NATO,” he said. “This is not a national security or strategic asset. If you track a truck driver — where he goes, how fast he goes and if he stops to go to the bathroom, it’s not a state secret.”

He also said it would send a harmful signal to other foreign investors. “The rest of the world will see an Italian government playing dice with the investment rules,” he said.