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TAG GmbH transaction

As part of the acquisition of an equity investment in Trans Austria Gasleitung GmbH (TAG), which was approved by Snam’s Board of Directors on 12 September 2014 and is governed by the framework agreement signed on 19 September 2014 by Snam, CDP Gas S.r.l. (CDP GAS) and its parent company Cassa Depositi e Prestiti S.p.A. (CDP S.p.A.), on 19 December 2014, Snam completed its acquisition of the equity investment in TAG held by CDP GAS, in exchange for a contractual price of €505 million8. The equity investment acquired represents 84.47% of TAG’s share capital and 89.22% of the economic rights9.

TAG owns the gas pipeline that connects the Austrian-Slovak border with the Tarvisio entry point via a system of three 380 km pipelines, five compression stations and auxiliary plants, extending over a total length of approximately 1,140 km.

On 17 December 2014, using the powers granted pursuant to Article 2443 of the Italian Civil Code by the Extraordinary Shareholders’ Meeting of 10 December 2014, Snam’s Board of Directors set forth the conditions of the capital increase, with the exclusion of option rights pursuant to Article 2441, paragraph four of the Italian Civil Code, reserved for subscription by CDP GAS. In exchange for the transfer of the equity investment in TAG, on 19 December 2014, Snam issued (and CDP GAS subscribed and paid up in full) 119,000,000 ordinary Snam shares, with no nominal value, at an issue price of €4.218 per share10, inclusive of share premium, and paid CDP GAS €3.1 million. The value of the Snam capital increase was €501.9 million, of which €376.3 million pertained to the share premium. As a result of the transaction, CDP GAS holds 3.40%11 of Snam’s share capital.

On the same date, Snam, by granting a short-term revolving credit line12, provided TAG with the necessary funds to repay to CDP GAS the shareholders’ loan granted to TAG for €238 million (€216 million as at 31 December 2014).

group captive insurance – Gasrule Insurance Ltd

With a view to ensuring more effective and efficient risk management for the group, following authorisation from the Central Bank of Ireland, the captive insurance company Gasrule Insurance Ltd has been in activity from July 2014. The company is headquartered in Dublin and is wholly owned by Snam. The corporate purpose of Gasrule Insurance Ltd is to cover the group’s industrial risks.

Optimisation of the group’s financial structure

In 2014, the optimisation of the group’s financial structure continued, with a view to making it fit better with business requirements in terms of loan duration and exposure to interest rates, reducing the overall cost of borrowing at the same time.

On 25 July 2014, Snam signed agreements with its lending banks in order to negotiate new and better conditions, in terms of both pricing and tenor, for the syndicated loan signed in July 2012. The syndicated loan, worth €3.2 billion in total, consists of a floating-rate revolving credit line worth €2 billion, with a term of three years, maturing in 2017, and a floating-rate liquidity line worth €1.2 billion, with a term of five years, maturing in 2019. The new loan does not contain any financial covenants.

Relating to the capital market, Snam carried out the following bond issues in 2014: (i) as part of the Euro Medium Term Notes (EMTN) programme approved by the Board of Directors on 11 June 201313, Snam carried out new issues worth a total of €1,250 million, including €1,100 million at a fixed rate and €150 million at a floating rate equal to Euribor plus 65 bps; (ii) as part of the EMTN programme approved by the Board of Directors on 23 June 201414, on 22 October 2014 Snam carried out a new issue worth €500 million, with a term of 8.5 years maturing on 21 April 2023 and a fixed-rate annual coupon of 1.5%. The bond was converted through an interest rate swap (IRS) into a floating-rate loan with a benchmark rate of 12-month Euribor. As at 31 December 2014, fixed-rate debt accounted for 69% of total financial debt, compared with 49% at the end of 2012 and 64% at the end of 2013.

From October, loan agreements were drawn up in relation to new credit lines, consisting of four three-year term loans worth a total of €1,000 million and three-year revolving credit lines worth a total of €750 million, with better pricing conditions than the committed bilateral bank credit lines granted to Snam from 2012 which have been subject to early repayment and/or extinguishment.


On 9 December 2014, rating agency Standard & Poor’s downgraded Snam’s long-term credit rating by one notch, from BBB+ to BBB, with a stable outlook.

This followed a one-notch downgrade of Italy’s sovereign debt rating on 5 December 2014 from BBB to BBB-, with a stable outlook.

Based on the methodology adopted by the rating agencies, Snam’s rating cannot be more than a notch higher than Italy’s rating.

Judicial administration of subsidiary Italgas – Court of Palermo

On 11 July 2014, the Court of Palermo notified the subsidiary Italgas of a preventative measure of judicial administration, pursuant to Article 34, paragraph 2 of Legislative Decree 159/2011 (“Anti-mafia code and prevention measures, as well as new measures relating to anti-mafia documentation in accordance with Articles 1 and 2 of Law 136 of 13 August 2010”). Pursuant to the law, this measure protects the capital structure of Italgas from infiltration and/or collusion.

This is a temporary measure with a fixed maximum duration, which in this case is six months and may be extended by no more than six months pursuant to Legislative Decree 159/2011. As a result, the powers of administration for the economic and business activities and assets of Italgas have been assigned to a collective administrative body comprising four court-appointed members. The Italgas Board of Directors is suspended for the duration of the measure. Snam retains full ownership of the entire share capital of Italgas and all related rights.

For the purposes of the accounting principles adopted when drawing up the 2014 Half-Year Report, it should be pointed out that Italgas had been notified of the measure on 11 July 2014, after the end of the first half of the year and prior to approval of the Report. Furthermore, for the purposes of the group’s consolidated financial statements, the collective administrative body had authorised the transmission to Snam of the Italgas Half-Year Report at 30 June 2014, together with the relevant management certifications involved in the group procedures in place and subject to prior examination by the Italgas Board of Statutory Auditors. Therefore, in light of the control it exercised over Italgas for the entire first half of 2014 and the full availability of the Company’s information flows as at 30 June 2014, in accordance with the provisions of IFRS 10 – “Consolidated Financial Statements”, Snam had retained the procedures used for consolidating the subsidiary within the group.

At the same time, Consob had informed the Company that it was investigating the possible effects of the Italgas matter on the accounting methods used in relation to the subsidiary in the reports pertaining to the period of the preventative measure.

Subsequently, with an order issued on 2 October 2014, the presiding judge gave a clearer definition of the scope of the judicial administration and the activities of the administrative body (hereinafter referred to as the “Order”). The Order specifies that the objectives of the judicial administration measure of which Italgas was notified are primarily related to inspection and focus on activities that may reveal whether there are indications of potential infiltration, with a view to taking the necessary steps. Based on this purpose and taking into account, in the case in question, that no action is being taken on the block of shares of the subsidiary and the fact that the preventive measure is a short-term, temporary measure, the Order states that there are no legal, operational or procedural grounds to call into question the parent company’s powers, compliance with the group’s objectives and strategies, or observance of corporate procedures.

Confirming this, with regard to the activities of the administrative body, the Order also states that, without prejudice to compliance with the provisions of law, this more clearly defined scope and the specific instructions given to the judicial administrators are based on the following principles and activities:

  1. The continuation by Italgas along the strategic lines defined in its previously adopted Business Plan and Budget, which, in line with the Snam Group’s sustainability, confirm Italgas’s position as a leading operator in the Italian natural gas distribution industry;
  2. The maintenance of the cash pooling services performed by Snam to cover Italgas’s financial requirements by accessing the financial markets, in line with the objectives approved in the Business Plan;
  3. The maintenance of the services provided centrally by the Snam Group for Italgas, in line with and without prejudice to the contracts in place and the powers granted (with the sole exception of limitations to some powers of attorney that have already been provided for);
  4. The maintenance of Italgas within the scope of consolidation of the Snam Group for the purposes of the national tax consolidation scheme, since the conditions provided for by the relevant regulations have been fulfilled;
  5. The availability to Snam of Italgas information flows for the purposes of drawing up periodic group consolidated financial reporting, including a statement from the Italgas management to Snam and to the independent auditors, in continuation of current procedures (in order to avoid comments from the independent auditors);
  6. The sharing and continuation by Italgas of obligations relating to Snam’s reporting control system pursuant to Law 262/2005 (in line with the steps already taken to maintain the Corporate Reporting Internal Control System);
  7. Continuity in relations between the control bodies of Snam and Italgas: continuity in carrying out the duties and meetings of the control and supervisory bodies of Italgas, without prejudice to any appropriate and necessary involvement with the judicial administration body in relation to the requirements of the preventative measure;
  8. Continuity in executing the group’s Annual Audit Schedule, which consists of the steps taken by the group Internal Audit department in relation to Italgas’s activities (as already carried out pursuant to the strategy of not introducing any amendments or delays to the annual schedule);
  9. Continuity in relation to the body of group procedures adopted by Italgas and the related interaction with Snam departments and management (including the “Extraordinary Transactions” procedure).

In light of the above, and in view of the scope of the judicial administration, the Order concluded that there were no obstacles to the consolidation of the Italgas S.p.A. financial statements within the Snam Group, without prejudice to the subsidiary retaining full independence and responsibility with regard to the adoption of decisions under its sole competency.

Snam has continued to work closely with the judicial authorities and the administrative body. Within this context, and partly in the interests of Italgas, Snam has appointed a leading specialised international company to conduct a thorough independent investigation aimed at:

  • reconstructing the circumstantial framework outlined in the Decree, particularly with regard to Italgas’s relations with the counterparties mentioned in the Decree and to the control system in force at the time;
  • assessing the overall stability of the current risk management and internal control system, particularly with regard to the risk of infiltration and facilitation of organised crime in tenders.

Following its technical work pertaining to accounts and records and to the internal control system, the appointed company drew the following conclusions, in summary: (i) the supply relations with the counterparties mentioned in the Decree accounted for less than 1% of Italgas’s total cumulative expenditure (and 0.16% of the Snam Group’s total expenditure) between 2009 and 2014; (ii) the current risk management and internal control system appears to be effective and suitable for the purpose of identifying, preventing or minimising the corporate operational risk of infiltration/facilitation of organised crime in business and economic activities. The findings of the thorough independent investigation have been submitted to the judicial authorities.

For the purposes of the Interim Directors’ Report at 30 September 2014, and taking into account the considerations set out in the Order, Italgas S.p.A. remained within the group’s scope of consolidation.

At the end of the six-month period, the court extended the preventative measure for an additional six months, as provided for by Legislative Decree 159/2011. At the same time, the Court ordered the administrative body to draw up a programme of measures aimed at concluding the activities, including in relation to the findings of said body. On 8 January 2015, the presiding judge issued an order confirming authorisation for Italgas to be included in the group’s consolidated financial statements, and ruled that the programme of measures should be drawn up taking into account Snam’s proposals and the staging of a technical round table. Snam is continuing to work closely with the judicial authorities and the administrative body in the hope of securing a swift conclusion to the proceedings. With regard to the identification of the scope of consolidation for the purpose of the 2014 Annual Report, Snam obtained two opinions from leading independent experts, which confirmed that Italgas should be included in the group’s scope of consolidation.

Based on the above considerations, and taking into account the opinions obtained, the fact that the events of recent months confirm the continuity of Snam’s single management structure and the full availability of Italgas’s information flow regarding the 2014 financial statements, which were approved by the judicial authorities, supported by accompanying statements and subject to prior assessment by the Italgas Board of Statutory Auditors, Snam opted to keep Italgas and its subsidiaries within the group’s scope of consolidation, in line with the accounting principles adopted for the financial documents published in 2014.

The Company has kept Consob informed of the progress of the measure and subsequent orders, as well as giving it advance notice of the accounting principles adopted.

Transactions completed after the end of the year

Entry of Crédit Agricole Assurances (CAA) into TIGF Holding

On 28 January 2015, Snam, GIC and EDF Invest (EDF) signed an agreement with CAA for the latter to acquire an equity investment of 10% in TIGF.

The transaction, which was subject to the usual conditions precedent, was completed on 26 February 2015. Based on a valuation of TIGF’s entire equity value at over €1.8 billion (compared with over €1.3 billion in July 2013, when Snam first acquired shares in the company), Snam had a cash in of more than €80 million.

Following the transaction, Snam, GIC, EDF and CAA indirectly hold 40.5%, 31.5%, 18% and 10% respectively of TIGF’s share capital (as at 31 December 2014, Snam, GIC and EDF held 45%, 35% and 20% respectively).

Bond issues

As part of the EMTN programme approved by the Board of Directors on 23 June 2014, on 28 January 2015, Snam successfully reopened an issue of fixed-rate bonds already outstanding, for an additional amount of €250 million in relation to the issue of 22 October 2014, with a maturity of 21 April 2023 and an annual fixed-rate coupon of 1.5%.

European Investment Bank loans

As part of measures aimed at improving the Company’s financial structure, on 16 February 2015 the European Investment Bank (EIB) granted a new loan of €200 million. In February 2015, Snam indicated its intention to make early repayment of two EIB loans worth a total of €300 million, which are priced under contractual conditions not in line with those currently available on the market.

Constitutional Court – Ruling 10/2015

On 9 February 2015, with Ruling 10/2015, the Constitutional Court declared the unconstitutionality of Article 81, paragraphs 16, 17 and 18 (the additional corporation tax known as the “Robin Hood Tax”) of Decree Law 112 of 25 June 2008, “Urgent provisions for economic development, simplification, competitiveness, stabilisation of the public finances and tax standardisation”, which was converted into law, with modifications, by Article 1, paragraph 1 of Law 133 of 6 August 2008, as subsequently amended. The unconstitutionality of the Article takes effect, as set forth in the ruling, from the day after its publication in the Italian Official Gazette, i.e. 12 February 2015. The ruling has resulted in a reduction in group taxes for the financial year due to the adjustment of deferred taxes for a total of €120 million15.

8 The price, which was determined based on a reference balance sheet at 30 November 2014 estimated, may be adjusted for cash in accordance with market practices.

9 The corporate governance rules stipulate that decisions on significant activities must be taken with the unanimous consent of Snam S.p.A.’s and Gas Connect Austria GmbH (GCA)’s shareholders.

10 The issue price is equal to the weighted average value of the official prices of Snam shares recorded in the 180 calendar days prior to 17 December 2014.

11 As at February 2015, the stake had decreased to 1.807%.

12 On the closing date, Snam and TAG agreed a shareholders’ loan in the form of a revolving credit line for a maximum of €285.5 million, maturing in January 2015, and subsequently extended to July 2015.

13 The programme provided for the issuance of bonds worth a total of up to €10 billion, to be issued in one or more tranches by 30 June 2014.

14 On 23 June 2014, the Snam Board of Directors resolved to extend the EMTN programme for a maximum value of €12 billion. Following the bond issue carried out in January 2015, the extension of the EMTN programme permits the issuance of additional bonds by 30 June 2015 for up to a maximum residual amount of €1.3 billion, to be placed with institutional investors operating mainly in Europe.

15 Further information can be found in the “Financial review” section.

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