The Grant of a Pledge in Financing Transactions Triggers FDI (Golden Power) Filing Requirement
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As part of a series of recent FDI reviews, the Italian government has determined that the grant of a pledge over shares of Italian companies in strategic sectors triggers the filing requirement under the Italian FDI regime, also known as the “Golden Power Law”.
According to the Italian government’s interpretation, the obligation to file would arise at time of the grant, extension and enforcement of the pledge.
Previously, the customary view was that the FDI filing is mandatory only at the time of the pledge’s enforcement, particularly when the grant of the pledge does not entail any transfer of control over the company’s assets or voting rights.
Legal Background and Pre-existing Market Practice
The Golden Power Law empowers the Italian government to review and impose vetos, special conditions and prescriptions on certain transactions involving assets or sectors deemed strategic to the interest of the Italian State.
The Italian FDI review primarily focuses on two types of transactions: (i) acquisitions of substantial equity interests in strategic Italian companies; and (ii) corporate transactions or actions that change the ownership, control, use or accessibility of strategic Italian assets or companies.
The second type includes, among others, the “assignment by way of security” involving shares and / or assets of strategic Italian companies, such as a pledge and/or a mortgage. However, the Golden Power Law does not specify when the filing requirement is triggered (i.e., whether it occurs at grant of the security, at its enforcement, or at either stage). Additionally, it’s not clear whether any extension of the security interest in case of additional financial obligations triggers a filing obligation as well.
While there is broad consensus on the mandatory nature of the FDI filing at the enforcement of the pledge, various professionals in the market argue that the filing is not mandatory at the time of its grant or extension if the voting rights attached to the pledged shares remain with the pledgor. They argue that there is no change in the ownership, control, use, or accessibility of the pledged shares in these scenarios.
The Italian Government Recent Interpretation on Pledges – FDI Filing Requirement
Based on the Italian Government’s interpretation of the Golden Power Law, any grant or extension (e.g., where secured obligations are increased) of a pledge over shares of strategic Italian companies would trigger the FDI filing requirement.
The pledgor is required to file within 10 days following the approval of the security by the pledgor and, in any case, before the pledge is granted. Breach of the filing requirement may lead to (i) monetary penalties for the pledgor, up to a maximum of twice the transaction value and a minimum of 1% of cumulative turnover of companies involved in the transaction; and (ii) unwinding of the pledge.
The table below sets out the minimum thresholds triggering the filing requirement, by company’s sector and pledgee’s nationality.
| FDI Sector / Assets | % pledged shares over share capital / voting rights | ||
| EU / EEA Pledgee | Italian Pledgee | Extra – EU / EEA Pledgee | |
| Energy | 50%+1 | 50%+1 | 10%(1) |
| Transport | |||
| Health | |||
| Agri-food / critical inputs | |||
| Health | |||
| Financial | |||
| Banking | |||
| Insurance | |||
| Water | No filing required | No filing required | 10%(1) |
| Access to sensitive information | |||
| Electoral infrastructures | |||
| Non-military Aerospace | |||
| Dual Use Items | |||
| Media | |||
| AI and Robotics | |||
| Defense and National Security | 3% + 1(2) | 3% +1(2) | 3% +1(2) |
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(1) The FDI filing requirement is triggered when the investment value is at least equal to Euro 1 million. Additionally, irrespective of the investment value, the FDI filing requirement is also triggered when the pledged shares exceed any of the following share capital or voting rights thresholds: 15%, 20%, 25% and 50%. (2) The FDI filing requirement is also triggered when the pledged shares exceed any of the following share capital or voting rights thresholds: 5%, 10%, 15%, 20%, 25% and 50%. |
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Conclusions
The interpretation of the Italian government significantly expands the scope of application of the FDI review. Therefore, prospective lenders and borrowers engaged in financing transactions secured by a pledge or other security over Italian assets or companies are encouraged to consult FDI experts in order to establish whether an FDI filing is required or recommended, also in cases where existing security is extended for additional financing obligations or there is a change in the pool of secured lenders.
We believe that the careful drafting of the FDI filing is required in order to avoid the complications of further filing requirements when modifications are made to the finance package.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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