Covalis Capital locks horns with Italy government over Enel board

By Alvise Armellini, Giuseppe Fonte and Francesca Landini

ROME (Reuters) -London-based hedge fund Covalis Capital on Monday presented an alternative list of candidates for the board of state-controlled utility Enel, challenging names put forward last week by the Italian government.

In a statement, Covalis said that the system that led to the government's nominations "undermines investor confidence, erodes value and is out of line with international standards of best practice in shareholder democracy."

The government decided on April 12 to oust Francesco Starace, Enel CEO since 2014, and proposed replacing him with Flavio Cattaneo, currently executive vice president of high-speed train operator Italo.

Rome also proposed as chairman Paolo Scaroni, a former Enel and Eni CEO, as part of a round of nominations in state-controlled firms decided by Prime Minister Giorgia Meloni's rightist government.

A day after the nominations were announced, Enel shares fell as much as 4%, with some investors fretting over the proposed CEO's lack of recent expertise in the renewable energy sector. Cattaneo will also have to deal with a debt pile which amounted to around 60 billion euros ($66 billion) in 2022.

Covalis complained about an "opaque process", saying it was unclear "what the government's proposed slate stands for or what their plan is for Enel", and adding it wanted to "start a debate" on what the company needs.

"We want to see a diverse, independent board which reflects the international nature of the company and its shareholder base," the fund said in its statement.

The Treasury and Enel both declined to comment.

SEEKING CLARITY

Before the Treasury's proposals, several investors in Enel told Reuters they had wanted a new CEO with expertise in renewables and strong international credentials. Enel is one of the world's biggest players in renewable energy.

The hedge fund, which owns abut 1% of Enel, did not propose a CEO candidate. Its list comprises the names of Marco Mazzucchelli, Leilani C. Latimer, Francesco Galietti, Monique Sasson, Paulina Beato and Daniel Lacalle.

A source familiar with the matter said the fund's primary objective was to prompt the government to clarify its vision for Enel and explain the choice of Cattaneo.

The Italian government is Enel's leading shareholder, with around 23.6%, and the company is deemed strategic to national interests, giving the executive special veto "golden powers" over its running.

It is unlikely that Covalis' list of candidates could prevail over the one proposed by the government when Enel shareholders' meet to vote on the board's renewal on May 10.

Intesa Sanpaolo, which has a "Buy" recommendation on Enel shares, backed the proposed new leadership, saying in a note it was "confident that the new management team will adopt a transparent and market-friendly approach".

In an interview with the Financial Times published before Covalis unveiled its list, the hedge fund's founder Zach Mecelis said Enel was trading at a discount due to uncertainty over management choices.

"Enel's stock will go up 30 to 40 per cent if this process is run differently," he said.

($1 = 0.9098 euros)

(Editing by Cristina Carlevaro and Keith Weir)