Convertible bond loan
Optimisation of the debt structure. Placed an equity linked bond loan for anominal amount of €400 million
An equity linked bond loan for a nominal amount of €400 million was successfully placed on 14 March 2017 with 5-year bonds issued at par with no interest. The regulation and closing of the bonds took place on 20 March 2017. The initial conversion price of the bonds was set at €4.8453, which represents a premium of 26% above the Volume Weighted Average Price (VWAP) of the Company’s ordinary shares, according to the Borsa Italiana S.p.A. price between the launch of the offering and the calculation of the price of the bonds, both of which took place on 14 March 2017.
On 11 April 2017, the Shareholders’ Meeting approved, among other things, authorisation for the Board of Directors to dispose of treasury shares. On 12 April 2017, Snam sent the bondholders the Physical Settlement Notice with the allocation, from 13 April 2017, of the right to convert the bonds into the Company’s ordinary shares.
The bonds will be reimbursed at their nominal value on 20 March 2022, unless there is an early repayment, or if the bonds have been previously converted or bought back by the Company.
This transaction represents a further step forward in the optimisation of the debt structure, making it possible to create additional value through the share buyback programme and obtain funding at competitive costs, with a positive impact on cash flows. The success of the transaction confirms the confidence of investors in Snam’s equity story.
Authorisation to purchase and dispose of treasury shares
On 1 August 2016 the Shareholders’ Meeting authorised the purchase of treasury shares for an outlay of up to €500 million and a maximum limit of 3.5% of the subscribed and released share capital, with regard to the treasury shares already owned by the Company to take place, also in tranches, within 18 months of the effective date of the demerger from Snam of the natural gas distribution business, i.e. by 7 November 2016.
On 11 April 2017 the Shareholders’ Meeting, after the revocation of the above-mentioned authorisation, issued a new authorisation with regard to the purchase of treasury shares, in one or more tranches, for a total outlay of €196 million, resulting from the difference between the maximum outlay (€500 million) and that incurred by the Company for the purchases made until the date of the shareholders’ meeting resolution (€304 million), all, in any event, up to the maximum limit of 3.5% of the Company’s share capital, with regard to the treasury shares already owned by the Company. Authorisation was conferred for a maximum of 18 months from the date on which the resolution was adopted. The essential contents were unchanged, from the perspective of the purchase, compared with those under the previous authorisation, with the integration of the resolution from the point of view of the authorisation for the Board of Directors for the disposal of both treasury shares already in the portfolio and those that can be bought back during the execution of the share buyback plan. As at 30 June 2017, Snam purchased 82,832,7017 treasury shares, representing 2.37% of the share capital, for a total of approximately €305 million with an average price of €3.6881 per share.
Long-term share-based incentive plan
Long-term share-based incentive plan 2017-2019
On 11 April 2017 the Ordinary Shareholders’ Meeting approved the 2017-2019 Long-term share-based incentive plan, conferring on the Board of Directors, and through it on the Chief Executive Officer, with the express power to delegate, all the necessary powers to implement the above-mentioned plan in full. The adoption of a long-term share-based incentive plan (performance share) is aimed at bringing Snam in line with market practice and strengthening the bond between the creation of value for shareholders and the remuneration of management. This plan is designed for the CEO and a maximum number of 20 executives who cover positions which have a greater impact on the creation of wealth or of strategic importance for the purpose of achieving Snam’s multi-year targets.
When implementing the above-mentioned powers, on 20 June 2017, the Board of Directors approved: (i) the annual allocation of the incentive to the CEO; (ii) the approval of the Regulation of each annual allocation; (iii) the identification of the Beneficiaries based on defined criteria; (iv) the conditions for the implementation.
The Plan includes three annual grant cycles of three-year targets (so-called rolling plan) for the years 2017, 2018 and 2019 and at the end of the three-year performance period, if the underlying conditions of the Plan are satisfied, the beneficiary will have the right to receive Company shares free of charge. The Plan also involves the beneficiaries receiving, at the end of the vesting period, a Dividend equivalent, or an additional number of shares equivalent to the ordinary and extraordinary dividends distributed by Snam during the vesting period based on the number of shares effectively granted to the beneficiaries by way of performance levels achieved under the terms and conditions of the Plan. The vesting of the shares is subject to the performance conditions being achieved, calculated as the average of the annual performance of the parameters identified in the three-year vesting period, which affect EBITDA, adjusted net profit and sustainability.
The maximum number of shares to service the plan is 3,500,000 for each tax year of the Plan. The Plan will end in 2022, when the vesting period of the last allocation in 2019 expires. There will also be a two-year lock-up period for the beneficiaries on 20% of the shares for the CEO and other executives, as recommended in the Code of Corporate Governance.
The Plan was concluded in the second half of the year through the acceptance of the granting letter and the regulation. Therefore, there were no effects with regard to the Consolidated Interim Financial Report as at 30 June 2017.
Framework agreement for the development of methane supply stations
Signed a framework agreement for the development of methane supply stations in Italy
On 25 May 2017 Snam and Eni signed a framework agreement for the development of methane supply stations in Italy. The partnership aims to build new compressed natural gas (CNG) and liquefied natural gas (LNG) supply stations within the national network of Eni distributors, promoting the supply of low-emission alternative fuels such as natural gas. The latter is extremely low in particulate emissions, the main factor responsible for urban pollution, also providing considerable economic advantages for consumers. The framework agreement comes under Snam’s initiatives to promote sustainable mobility, with an investment of €150 million up to 2021 to create 300 new distributors to support the development of natural gas supply facilities and ensure a more balanced distribution of stations in the various regions of the country also improving the quality of the supply service to users.
Buoyed by a well-established technology and at the cutting edge globally, Italy is the leading European market for the consumption of methane in the automotive industry, with over 1 billion cubic metres consumed in 2015 and approximately 1 million vehicles currently in circulation. The framework agreement and subsequent executive contracts will also provide additional impetus to the natural gas business segment in the transport segment, which represents technological and environmental excellence that is recognised worldwide and can further leverage Europe’s more extensive and accessible network of methane pipelines, which are more than 32,000 kilometres in length.
Post-balance sheet events
Infrastrutture Trasporto Gas S.p.A. and Terminale GNL Adriatico S.r.l.
Infrastrutture Trasporto Gas S.p.A. (ITG) and Terminale GNL Adriatico S.r.l. (Adriatic LNG)
On 25 July 2017, Snam has entered into definitive agreements with Edison for the purchase of 100% of the issued share capital of Infrastrutture Trasporto Gas S.p.A. (ITG), third player in the Italian gas transportation market that operates the 83.3km-long gas transmission pipeline which extends from Cavarzere (Veneto) to Minerbio (Emilia Romagna) connecting the Adriatic LNG regasification terminal to the Italian gas transmission network in Minerbio, and a 7.3% quota of the capital of Terminale GNL Adriatico S.r.l. (Adriatic LNG), the largest offshore gravity based structure for LNG unloading, storing and regasification and the largest LNG terminal in Italy.
The total consideration of the transaction is equal to 225 million euro, subject to price adjustment at closing. Moreover, should Adriatic LNG sign new contracts for utilization of the terminal capacity, Snam will recognize to Edison a potential additional consideration under the form of an earn-out.
The closing of the transaction is expected by the end of 2017 and, with reference to the participation in Adriatic LNG, remains subject to, inter alia, the non-exercise of pre-emption rights granted to the other current shareholders.
This transaction enables us to strengthen our position in the Italian gas transportation market as well as exploit new synergies in the integrated management of the gas system, connecting to our network an entry point that was not directly under Snam’s control.
7 Including 54,054,771 shares bought in the first half of 2017 for a total cost of €202 million.