Elements of risk management and uncertainty

Snam has established the Enterprise Risk Management (ERM) unit, which reports directly to the CEO and oversees the integrated process of managing corporate risk for all Group companies. The main objectives of ERM are to define a risk assessment model that allows risks to be identified, using standardised, group-wide policies, and then prioritised, to provide consolidated measures to mitigate these risks and to draw up a reporting system.

The ERM unit operates as part of the wider Internal Control and Risk Management System of Snam.

With regard to the risks resulting from the operation of separating Italgas from Snam, please refer to the next paragraph “Main risks factors relating to the operation of separating Italgas from Snam” and to the Information Document prepared pursuant to Article 70, paragraph 6 of the Issuers’ Regulation available on the Snam website (www.snam.it, in the section “Ethics and Governance - Shareholders’ Meetings”).

Main risk factors and uncertainties for the Snam Group

The main types of risk identified by Snam, based on the conditions existing at the date of this Report, are:

• regulatory risk and legal and non-compliance risk;
• cyclical risk;
• operating risks;
• specific risks associated in particular with market risk and competition in various sectors in which the Group operates;
• risks of a financial nature, resulting from exposure to interest rate and exchange rate fluctuations, from bad debts, from liquidity risk, as well as default risk and medium- and long-term debt rating downgrade.

Regulatory risk, for Snam, is closely linked to the regulation of its activities in the gas sector. Considering the specific nature of its business and the context in which Snam operates, changes to the regulatory context with regard to criteria for determining reference tariffs are particularly significant. Regulatory directives and provisions issued by the European Union and the Italian government and the decisions of the AEEGSI and, more generally, changes in the regulatory context can have negative effects on the assets and the balance sheet, income statement and financial position of the Snam Group.

Legal and non-compliance risk concerns the failure to comply, in full or in part, with rules and regulations at the European, national, regional and local levels to which Snam is subject in relation to the activities it performs. The infringement of such rules and regulations may result in criminal, civil and/or administrative sanctions, as well as damage to the Company’s balance sheet, financial position and/or reputation. As regards specific cases, the infringement of regulations on the protection of workers’ health and safety and of the environment, and the infringement of anti-corruption rules, inter alia, may also result in (possibly significant) sanctions on the Company based on the administrative responsibility of entities (Legislative Decree 231 of 8 June 2001).

Cyclical risk for Snam is closely associated with the impacts that changes in the macro economic situation could have on the capacity of the Group to access the capital and debt markets, or to refinance existing debt to satisfy its liquidity requirements. From the second half of 2007, the turmoil created in the global financial system was caused by increasingly difficult conditions in financial markets. These conditions created a reduction in liquidity and greater volatility in the global financial markets and continue to have an impact on financial markets and the global economy. Some governments, international and supranational organisations and monetary authorities recently adopted measures aimed at increasing liquidity in the financial markets, in order to give a boost to the growth of global GDP and mitigate the risk of sovereign debt of several European countries. However, it is difficult to predict what the effect of these measures will be on the economy and on the financial system, as well as how long they will last. In addition to the above, the British referendum on 23 June 2016 in which the majority of United Kingdom citizens voted to leave the European Union (“Brexit”) could cause an increase in volatility in financial markets, a worsening of financial conditions, in particular for the so-called “peripheral” countries, including Italy, and a possible slowdown in the economic cycle. In addition, on the other side, the result of the referendum could exert significant pressure on other member states to leave the European Union and the Monetary Union, with further negative consequences on the above-mentioned phenomena, moreover it is not possible in European Union countries, including Italy, to rule out further increases in political and institutional instability with a consequent rise in sovereign debt interest rates. All of this could cause an increase in the Snam Group’s cost of debt with consequent negative effects on its assets and on the balance sheet, income statement and cash flows.

Operating risks consist mainly of the malfunctioning and unforeseen interruption of the service determined by accidental events, including accidents, breakdowns or malfunctions of equipment or control systems, reduced output of plants, and extraordinary events such as explosions, fires, earthquakes, landslides or other similar events outside of Snam’s control. Such events could result in a reduction in revenue and could also cause significant damage to people, with potential compensation obligations. Although Snam has taken out specific insurance policies to cover some of these risks, the related insurance cover could be insufficient to meet all the losses incurred, compensation obligations or cost increases.

There is also the concrete possibility that Snam could incur delays in the progress of infrastructure construction programmes as a result of several unknowns linked to operating, economic, regulatory, authorisation and competition factors, regardless of its intentions. Snam is therefore unable to guarantee that the projects to upgrade and extend its network will be started, be completed or lead to the expected benefits in terms of tariffs. Additionally, the development projects may require greater investments or longer time frames than those originally planned, affecting Snam’s financial position and results.

With regard to the market and competition risks associated with the individual sectors in which Snam operates, note, specifically, the risks linked to the expiry and renewal of distribution concessions and the risks associated with the repayment to the outgoing operator with reference to gas distribution activities, and, as far as the storage sector is concerned, the risks associated with maintaining ownership of storage concessions.

The gas distribution operations in which the Snam Group is involved and which the ITG Holding Group will be involved in after the Effective Date of the Merger, are exercised by virtue of the concessions issued by individual municipalities. At 31 December 2015, the above-mentioned concessions, owned by Italgas and its subsidiaries (Napoletanagas S.p.A. (“Napoletanagas”), AES Torino S.p.A. and ACAM Gas S.p.A. (“ACAM Gas”)), come to a total of 1,472 of which 1,183 have expired. The average life of existing concessions is 7 years. Note, for completeness, that the subject relating to the expiry of concessions does not only involve Italgas and its subsidiaries, but all operators in the gas distribution sector in Italy. In this regard, from the moment the gas distribution service is qualified as a public service, Italgas and its subsidiaries - also following the expiry of the concession- should continue with the management of the service (and be remunerated), limited to the ordinary administration, until the start date of the new concession (Article 14 of Legislative Decree 164 of 2000). The new gas distribution service concessions should be awarded through tenders launched exclusively for ATEM (Minimum Territorial Areas). The tender award criteria for the natural gas distribution service, significant for the purpose of evaluating the tender bid, are governed by Inter-ministerial Decree 226 of 12 November 2011. The award criteria involve the allocation of 28 points to the financial quotation (divided between tariff discounts and service to customers and fees to be paid to municipal administrations), 27 points to the management proposal (which rewards the quality and safety of the service offered) and 45 points to the technical bid (which rewards the capacity of the offeror to carry out an accurate analysis of the structure of the networks and implement, possibly even improving, the investment plan prepared by the contracting entity, with regard to extension, maintenance and technological innovation measures). At the date of this Report it is not yet possible to make a definite assessment with regard to each of the elements of the new concession award system nor is there an established interpretation of the new regulatory framework by the awarding administrations or the judicial administration. Under the scope of the tender procedures launched, Italgas may not be awarded the concessions planned, or could be awarded these concessions at less favourable conditions than the current ones with possible negative impacts on operations and on the balance sheet, income statement and financial position. However, it should be pointed out that, if it is not awarded the concessions for municipalities it managed previously, Italgas would have the right to receive the Payment Amount intended for the outgoing operator calculated in accordance with Ministerial Decree 226 of 12 November 2011 (“D.M. 226/2011”). Taking into account the complexity of the regulations governing the expiry of the concessions that Italgas and its subsidiaries own, this could translate into legal and/or arbitration proceedings between concessionaires, including Italgas, and third-parties with possible negative effects on the assets and the balance sheet, income statement and financial position of the ITG Holding Group.

With regard to gas distribution concessions, Article 14, paragraph 8 of Legislative Decree 164 of 2000 establishes that the new operator, among other things, is obliged to pay a sum to the outgoing distributor equal to the repayment value for the plants whose ownership is transferred from the outgoing distributor to the new operator. Specifically, Ministerial Decree 226/2011 states that the incoming operator acquires ownership of the plant with the payment of the reimbursement to the outgoing operator, with the exception of any portions of the plant that are already municipally owned or which become municipally owned as a result of any free donations. Pursuant to Article 15, paragraph 5 of Legislative Decree 164 of 200, the Repayment Amount paid to outgoing operators is calculated based on what has been established in the agreements or contracts, provided that these were entered into before the date on which the regulation pursuant to Ministerial Decree No. 226 came into effect (i.e. before 11 February 2012), and, for the portion that cannot be inferred from the will of the parties, as well as the aspects not governed by the aforementioned agreements or contracts, based on the guidelines on the operating criteria and methods for measuring the repayment amount, which were subsequently made available by the Ministry of Economic Development in a document dated 7 April 2014 and approved by a Ministerial Decree of 22 May 2014 (“Guidelines”). The Repayment Value calculated based on the methodology set out in Article 5, paragraphs 5 and 11 of Ministerial Decree 226/2011, is equal to the cost that would be incurred for its reconstruction from new, minus the value of the physical degradation, including non-current assets under construction from the accounting records and deducting public and private contributions relating to local assets. In the event that the Repayment Value exceeds more than 10% of the value of the local net fixed assets, calculated with regard to the criteria used by the AEEGSI to calculate distribution tariffs (net of government grants for capital expenditure and private contributions relating to local assets), the granting local authority shall send the documentation with the detailed calculation of the Repayment Value to the AEEGSI.

Through resolution 367/2014/R/gas, the AEEGSI approved the regulation of gas distribution and metering service tariffs for the 2014-2019 regulatory period. Among other things, the Resolution made the following provisions:

- the initial value, paid for tariff purposes, of local fixed assets subject to transfer for consideration to the incoming operator, is calculated on the basis of:

a) the Repayment Value - pursuant to Article 5 of Ministerial Decree 226/2011 - paid to the outgoing operator if the outgoing operator is different from the incoming operator, calculated as the reconstruction value from new excluding degradation and grants received;

b) the value of the local fixed assets calculated with reference to the criteria used by the AEEGSI for calculating the distribution tariffs, in other cases;

- at the end of the first award period (12 years), the value of local fixed assets will be calculated, in both cases (a and b) as the sum of two components:

a) residual value of existing stock at the start of the award period, valued based on the Repayment Value pursuant to Article 5 of Ministerial Decree 226/2011, taking into account the amortisation, depreciation and divestments recognised for tariff purposes in the award period;

b) residual value of new investments made in the award period and existing at the end of the period, valued on the basis of the rules used for the tariff regulation.

As a result of this framework, there will be cases in which the Repayment Value could be lower or higher than the RAB (Regulatory Asset Base).

The estimated RAB of the Italgas Group at 31 December 2015 is equal to approximately €5.7 billion, broken down as local RAB equal to approximately €5.4 billion and centralised RAB equal to approximately €0.3 billion.

The Repayment Value at 31 December 2015 of the total portfolio of the Italgas Group concessions, excluding free donations, was estimated by Italgas at approximately €5.6 billion based on the methodology in Article 5 of Ministerial Decree 226/2011 and later amendments and supplements and by the Guidelines, with the exception of concessions which, based on the above-mentioned regulations, involve specific contractual agreements relating to the calculation of the Repayment Value (Roma Capitale, City of Venice, Naples and other small municipalities). It is not possible to rule out that the Repayment Value of the concessions, for which a third-party is awarded the contract in the tender process, will be lower than the value of the RAB. Such a case could have negative effects on the assets and the balance sheet, income statement and financial position of the ITG Holding Group.

In 2012, Italgas was awarded the contract for the natural gas distribution service for the Municipality of Rome (the Roma Capitale concession which includes approximately 1.3 million redelivery points out of an Italgas Group total of approximately 6.5 million). At the conclusion of the tender process, to which the framework did not yet apply, a 12-year service agreement, which will expire on 20 November 2024, was signed. The Municipality of Rome has placed the network, systems and property structures instrumental to the service at the disposal of the Italgas for the entire duration of the service agreement. The Repayment Value at 31 December 2015 of the Roma Capital concession was estimated by Italgas to be around €1 billion. This amount is equal to the sum of:

1. what was paid to the Municipality of Rome at the start of the concession (November 2012) by way of a one-off payment for the management of the service (€874.7 million), excluding amortisation and depreciation at 31 December 2015, calculated based on the length of the contract and the provisions, as the residual value at the end of the concession (€299.6 million);

2. the value of the cumulative investments from the start of the concession, in accordance with the contract and, specifically, with reference to only their partial recognition in the Repayment Value, excluding amortisation and depreciation.

Italgas estimated that the RAB at 31 December 2015 relating to the Roma Capitale concession was approximately €1.35 billion. It is not possible to rule out, however, that when the service contract runs out, the difference between the Repayment Value and the RB relating to the Roma Capitale concession, could be higher than estimated with reference to 31 December 2015.

With regard to storage activities, 8 of the 10 concessions held by Snam via Stogit (Alfonsine, Brugherio, Cortemaggiore, Minerbio, Ripalta, Sabbioncello, Sergnano and Settala) are due to expire in December 2016 and may be extended by the Ministry of Economic Development no more than twice, for a duration of 10 years each, one (Fiume Treste) will expire in June 2022 and underwent a first 10-year extension in 2011, and one (Bordolano) will expire in November 2031 and may be extended for another 10 years¹⁸. If Snam is unable to retain ownership of one or more of its concessions or if, at the time of the renewal, the concessions are awarded under terms less favourable than the current ones, there may be negative effects on the Company’s operations, results, balance sheet and cash flow.

Market risks mainly concern the risk associated with changes in the price of natural gas. Pursuant to the regulatory framework in force, the change in the price of natural gas covering fuel gas and network losses is not a significant risk factor for Snam, since all the gas for instrumental activities is supplied by shippers in kind. However, in relation to transportation activities, the Authority has defined, starting with the third regulatory period (2010-2013), procedures for payment in kind, by users of the service to the leading transportation company, of quantities of gas to cover unaccounted-for gas (UFG), due as a percentage of the quantities respectively injected into and withdrawn from the transportation network. Specifically, the Authority defines the permitted level of gas not accounted for based on a fixed amount for the entire regulatory period, with a view to encouraging the leading transportation company to deliver further efficiency improvements. The aforementioned procedures were confirmed by the Authority for the fourth regulatory period, by means of Resolution 514/2013/R/gas. In view of the aforementioned mechanism for the payment in kind of UFG, there is still uncertainty about the quantities of UFG withdrawn over and above the quantities paid in kind by the users of the service.

Interest rate risk is associated with fluctuations in interest rates affecting the market value of the Company’s financial assets and liabilities and its net financial expense. Snam aims to optimise interest rate risk while pursuing its financial objectives. The Snam Group has adopted a centralised organisational model. In accordance with this model, Snam’s various departments access the financial markets and use funds to cover financial requirements, in compliance with approved objectives, ensuring that the risk profile stays within defined limits. On 30 June 2016, the Snam Group used external financial resources in the form of bonds and bilateral and syndicated loans with banks and other financial institutions, in the form of medium- to long-term loans and bank credit lines at interest rates indexed to the reference market rates, in particular the Europe Interbank Offered Rate (Euribor), and at fixed rates. The exposure to interest rate risk at 30 June 2016 was approximately 38% of the total exposure of the Group (36% at 31 December 2015). At 30 June 2016 Snam has an Interest Rate Swap (IRS) agreement on a fixed rate bond loan for an amount of €500 million with a due date of 2023. IRS agreements are used to convert fixed rate loans into variable rate loans.

Snam’s exposure to exchange rate risk relates to both transaction risk and translation risk. Transaction risk is generated by the conversion of commercial or financial receivables (payables) into currencies other than the functional currency and is caused by the impact of unfavourable exchange rate fluctuations between the time that the transaction is carried out and the time it is settled (collection/payment). Translation risk relates to fluctuations in the exchange rates of currencies other than the consolidation currency (the euro), which can result in changes to consolidated shareholders’ equity. Snam’s risk management system aims to minimise transaction risk through measures such as the use of financial derivatives. It is not possible to rule out that future significant exchange rate variations will produce negative effects on the assets and the financial position of the Snam Group irrespective of the hedging policies implemented by Snam for the exchange rate risks using the financial instruments available on the market.

At 30 June 2016, Snam’s foreign currency items consisted essentially of: a bond worth ¥10 billion, maturing in 2019, which was worth around €75 million at the issue date and was fully converted into euros through a cross-currency swap. Snam does not have any cross-currency swaps in place for speculative purposes.

At 30 June 2016, Snam also has a hedging derivative agreement for the forward purchase of foreign currency (Swiss Francs - CHF), with a due date of 13 July 2016, to hedge against the exchange rate risk associated with the capital increase for the subsidiary TAP, paid on 13 July 2016.

Credit risk is the Company’s exposure to potential losses arising from counter-parties failing to fulfil their obligations. Default or delayed payment of fees may have a negative impact on the economic results and the financial balance of Snam. For the risk of non-compliance by the counter-party concerning contracts of a commercial nature, the credit management for credit recovery and any disputes are handled by the business units and the centralised Snam departments. Snam provides business services to a small number of operators in the gas sector, the largest of which by revenue is Eni S.p.A. The rules for client access to the services offered are established by the Authority and set out in the Network Codes. For each type of service, these documents explain the rules regulating the rights and obligations of the parties involved in providing said services and contain contractual conditions which reduce the risk of non-compliance by the clients. In certain cases, the Codes require guarantees to be provided to partly cover obligations where the client does not possess a credit rating issued by one of the leading international agencies. The regulations also contain specific clauses which guarantee the neutrality of the entity in charge of balancing, an activity carried out from 1 December 2011 by Snam Rete Gas as the major transportation company. In particular, balancing gives Snam Rete Gas an obligation to acquire, according to criteria of financial merit, the resources necessary to guarantee the safe and efficient movement of gas from entry points to withdrawal points, in order to maintain a constant balance in the network, procure the necessary storage resources for covering imbalances for individual users and adjust the relevant income statement items.

Snam may, however, incur liabilities and/or losses from the failure of its clients to comply with payment obligations, partly because of the current economic and financial situation, which makes the collection of receivables more difficult and more important. Snam’s maximum exposure to credit risk at 30 June 2016 is the book value of the financial assets on its balance sheet.

Liquidity risk is the risk that new financial resources may not be available (funding liquidity risk) or that the Company may be unable to convert assets into cash on the market (asset liquidity risk), meaning that it cannot meet its payment commitments. This may affect profit or loss should the Company be obliged to incur extra costs to meet its commitments or, in extreme cases, lead to insolvency and threaten the Company’s future as a going concern. Snam’s risk management system aims to establish, under the financial plan, a financial structure that, in line with the business objectives, ensures sufficient liquidity for the Group, minimising the relative opportunity cost and maintaining a balance in terms of the duration and composition of the debt.

As shown in the previous section on Interest rate risk, the Company had access to a wide range of funding sources through the credit system and the capital markets (bilateral contracts, pool financing with major domestic and international banks, loan contracts with the EIB and bonds).

Snam’s objective is to maintain a balanced debt structure, in terms of the composition of the bonds and the bank credit and the availability of usable committed bank credit lines, in line with its business profile and the regulatory environment in which Snam operates. At 30 June 2016, Snam had unused committed long-term credit lines worth approximately €3.7 billion.

At 30 June 2016, the Euro Medium Term Notes (EMTN) programme, for a maximum total value of €12 billion of which approximately €9.5 billion has been used, expired and is being renewed.

Default risk is the possibility that when certain circumstances occur, the lender may enact contractual protections that may result in the early repayment of the loan, thus generating a potential liquidity risk.

As at 30 June 2016, Snam has unsecured bilateral and syndicated loan agreements in place with banks and other financial institutions. Some of these contracts provide, inter alia, for the following: (i) negative pledge commitments pursuant to which Snam and its subsidiaries are subject to limitations concerning the pledging of real property rights or other restrictions on all or part of the respective assets, shares or merchandise; (ii) pari passu and change-of-control clauses; and (iii) limitations on certain extraordinary transactions that the Company and its subsidiaries may carry out.

The bonds issued by Snam as at 30 June 2016 as part of the Euro Medium Term Notes programme provide for compliance with covenants that reflect international market practices regarding, inter alia, negative pledge and pari passu clauses.

Failure to meet these covenants, and the occurrence of other events, some of which are subject to specific thresholds, such as cross-default events, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan. Exclusively for the EIB loans, the lender has the option to request additional guarantees if Snam’s rating is downgraded to BBB- (Standard & Poor’s/Fitch Ratings Limited) or Baa3 (Moody’s).

With reference to rating risk, on 30 June 2016 Snam’s long term rating was equal to: (i) BBB+, according to Fitch Ratings (“Fitch”); (ii) Baa1, according to Moody’s Investors Services Ltd. (“Moody’s”); and (iii) BBB, according to Standard & Poor’s Rating Services (“S&P”). With reference to Snam’s long-term debt, following the announcement to the market of the operation of separating Italgas from Snam, on 29 June 2016 Fitch Ratings confirmed the rating of BBB+ with a stable outlook, Moody’s confirmed the rating of Baa1, with a stable outlook and S&P confirmed the rating of BBB with a stable outlook.

Snam’s long-term rating by Moody’s and S&P is a notch higher than that of Italian sovereign debt. Based on the methodology adopted by these rating agencies, the downgrade by one notch from the current rating of the Republic of Italy would lead to a corresponding reduction of Snam’s current rating. The agencies Fitch, Moody’s and S&P which assigned a rating to Snam are all registered with the ESMA.

Any reductions in the ratings assigned to the Snam Group could result in limiting the possibility of access to the capital markets and increase the cost of collecting and/or refinancing the existing debt with consequent negative effects on the assets and the balance sheet, income statement and financial position of the Snam Group.

Main risk factors relating to the operation of separating Italgas from Snam

The main risks to Snam relating to the operation of separating Italgas (hereinafter the “Operation”), which includes the partial and proportional spin-off of Snam, are illustrated below. For this purpose, note that the effectiveness of the Operation is subject, in addition to legal conditions, including, specifically, the vote in favour by the Snam Shareholders’ Meeting, to several conditions precedent: (i) the issuing of provisions by the Italian Stock Exchange for the admission to trading on the MTA of the shares of ITG Holding S.p.A., the spin-off beneficiary company ; (ii) the issuing of an opinion of equivalence by Consob pursuant to Article 57, paragraph 1, letter d) of the regulations adopted by Consob by Resolution 11971 of 14 May 1999 (Issuers’ Regulation), as amended, with regard to the Information Document, prepared in accordance with Article 70 of the Issuers’ Regulation, integrated pursuant to Article 57 of the Regulation; and (iii) the approval of the Snam bondholders.

Risks associated with sources of funding used by Snam and the possible need for refinancing

Snam had access to a wide range of funding sources through the credit system and the capital markets (bilateral contracts, pool financing with major domestic and international banks, loan contracts with the EIB and bonds).

Several of Snam’s existing loans contain limitation clauses with regard to the possibility of carrying out corporate transactions (as the Operation) or arrangement with assets of the company or its significant subsidiaries, usual in contract practices of this type, the violation of which could result in the obligation to repay these loans early.

At 30 June 2016, in addition to what has been specified in the section below on agreements with the EIB, Snam has also taken out loans from other lending institutions, with the necessary consent for the completion of the separation of Italgas from Snam, conditional, amongst other, to the completion of the Operation.

The bond loans issued by Snam under the scope of the Euro Medium Term Notes programme, include, inter alia, compliance with a covenant governed by typical international market practice, which requires the approval of the bondholders for Snam to sell a substantial part of its industrial assets following a corporate reorganisation like the spin-off. Failure to obtain this approval could result in Snam defaulting with regard to the bond regulations. Snam will ask for this approval at the Bondholders’ Meeting that the Snam Board of Directors called on 28 June Snam for a date which has yet to be decided and in any case in time for carrying out the Operation. Note, as mentioned above, that the approval of the Operation by the Snam bondholders is one of the conditions to which the effectiveness of the actual Operation is subject.

The separation of Italgas from Snam will not require Snam to arrange any refinancing operations, nor will it involve an increase in debt as a direct result. Snam could implement optimisation measures for its financial structure under the scope of ordinary debt management.

Risks associated with the loan agreements with the European Investment Bank

The European Investment Bank has given its consent for the completion of the separation of Italgas from Snam, by the partial and proportional spin-off, subject to several conditions precedent, such as, specifically, the receipt by the EIB of the deed of spin-off in a format and substance satisfactory to the EIB and Snam’s updated business plan and any other documentation about the Operation available to creditors which demonstrate that Snam’s credit risk and overall industrial assets are not prejudiced by the Operation.

With regard to the two loans provided by the EIB to Snam and destined to fund Italgas projects, the EIB stated it was willing to consent to the refinancing for Snam subject to several conditions being verified (including the approval of the EIB decision-making boards in this regard).

Where, as a result of the above-mentioned conditions, the EIB were not to give its consent for the completion of the Operation or not to consent to the refinancing, Snam may need to obtain new resource to repay the EIB.

Risks associated with the repayment of the existing debt following the Operation by the beneficiary company and the companies it owns (ITG Holding Group)

As a result of the Transaction, the ITG Holding Group will be obliged to:

(i) repay the existing inter-company loans with Snam; and

(ii) to pay Snam the price from the sale of a shareholding equal to 38.87% of the share capital of Italgas by repaying the vendor loan.

If the ITG Holding Group did not have the necessary financial resources for repaying this debt, Snam would have an unsatisfied financial receivable, with the consequent inability to be able to reduce its debt by the same amount and this could have a negative impact on Snam’s rating.

Risks associated with the realisation of the Operation

There are no certainties that the Operation will be realised or it could encounter administrative, technical, industrial, operational, regulatory, political or financial difficulties resulting in it being unable to produce the expected benefits or the costs being higher than those forecast.