Italy weighs fresh options to curb Chinese sway over Pirelli, sources say

By Giulio Piovaccari and Elvira Pollina

Jan 6 (Reuters) - Italy is weighing measures to make China's Sinochem 600500.SS a passive shareholder in Pirelli PIRC.MI, including freezing its voting rights, as part of efforts to back the tyremaker's U.S. expansion, two sources familiar with the matter said.

Reuters was first to report in September that a sale of Sinochem's 34% stake in Pirelli was among options under consideration as Italy worked with the tyremaker to address concerns that a Chinese shareholder could hinder Pirelli's U.S. expansion ambitions.

Rome has used special powers it has to shield assets deemed of strategic national relevance to help Pirelli to address a governance dispute that has pitted Sinochem against fellow investor Camfin, the group's second-largest shareholder.

Pirelli and Camfin have complained that having a Chinese company as its main shareholder hampered U.S. expansion as Washington tightened restrictions on Chinese technology in the automotive sector.

ROME'S GOLDEN POWER

While a sale of the holding remains an option, Italy does not rule out using its so-called golden power to limit Sinochem's shareholder rights, the two sources said.

Pirelli declined to comment. The economy and industry ministries did not immediately respond to Reuters requests for comment.

A passive shareholder retains economic rights but typically has no voting rights or any power to influence strategic decisions.

Sources told Reuters in September that Sinochem was open to considering bids for its stake, provided they came with a premium.

Sinochem has since hired BNP Paribas to advise on a possible sale, one of the two sources added. Reuters was not able to reach a BNP representative for immediate comment.

EFFORTS TO FIND A SOLUTION

Industry Minister Adolfo Urso expressed confidence in October that shareholders in Pirelli would find a solution, with full government support, for the company to be able to operate at its best in its most significant and promising markets, starting with the U.S.

In December, Urso said Pirelli's Italian and Chinese shareholders had resumed talks to reach a solution, thanks to the government's efforts to promote dialogue.

Pressure to find a solution is rising ahead of new U.S. rules from March that will restrict the use of Chinese technology in vehicles sold in the United States, while a shareholder agreement between Camfin and Sinochem expires in May.

The Financial Times first reported on Tuesday that Pirelli and Italy were exploring new ways to end Chinese state-owned involvement in Pirelli.