Italy to make formal complaint over Chinese takeover of military drones firm

Italy believes it should have been asked to approve the purchase of a military drones company by Chinese investors, and will issue a complaint that could eventually sink the deal if it doesn’t get a satisfactory explanation, three sources said.

Rome opened an inquiry in August into the 2018 sale of a 75% stake in Alpi Aviation, based in northern Italy, to see whether it should have been notified about the transaction under so-called golden power regulations for strategically important assets.

The deal showed how easy it was for changes in corporate ownership to go under the radar at a time when pressure is rising in the United States and Europe to monitor potential risks to national security from Chinese investors.

The Chinese groups involved in the takeover through a chain of investment vehicles are China Corporate United Investment Holding and CRRC Capital Holding, which are in turn controlled by the Management Committee of Wuxi Liyuan Economic Development Zone and SASAC.

A request for comment sent to these entities went unanswered outside of business hours, while the office of Italian Prime Minister Mario Draghi declined to comment.

Alpi Aviation was not immediately available to comment. Its lawyers have previously said the company complied with all rules in the sale.

After an in-depth analysis, the government is preparing a formal notice to be sent to all involved parties asking for clarifications, the three sources directly involved in the case said.

Italian authorities are paying “utmost attention” to the matter, one of them added.

The case became public in September, when the Italian tax police disclosed a probe into the deal over an alleged breach of rules regarding the sale of military materials, saying six people were under investigation.

Police at that time said the deal was “clearly” a predatory investment in technology.

A fourth source said the Chinese investors paid almost 6 million euros ($6.8 million) for the 75% stake.

Rome could impose penalties which, in the most serious case, might lead to the sale being invalidated.

The government has special anti-takeover powers to shield strategic assets from non-European Union and – on a temporary basis until Dec. 31 – EU groups.

Italy has so far used its golden powers four times since 2012 to block foreign interests in Italy. Three of these headed off Chinese bids, and two have been since Drgahi’s government took office nine months ago.

Draghi vetoed last month the sale of a vegetable seed producer to Chinese-owned group Syngenta, and prevented in April Chinese company Shenzhen Invenland Holdings Co. Ltd. from buying a controlling stake in a firm producing semiconductor equipment.