14. Investments valued using the equity method

Investments valued using the equity method, amounting to €1,499 million (€1,372 million at 31 December 2015) break down as follows:

Acquisitions and subscriptions (€170 million) relate to: (i) the capital contribution²⁵ to the consortium AS Gasinfrastruktur Beteiligung GmbH (ASG HoldCo) (€135 million), a joint venture in which Allianz and Snam respectively hold stakes of 60% and 40%. The contribution follows the agreements signed on 22 September 2016 between the consortium AS Gasinfrastruktur Beteiligung GmbH (ASG HoldCo) and OMV Gas & Power GmbH (OGP) for the sale of 49% di Gas Connect Austria GmbH (GCA), a company operating in the transportation of natural gas in Austria. The transaction was concluded on 15 December 2016 following a total outlay of €135 million²⁶; (ii) the share capital increase of the associate company Trans Adriatic Pipeline AG – TAP, which is involved in the development of the project that will enable the transportation of the gas from Azerbaijan to European markets, whereby Snam is involved to an extent proportional to the shareholding owned, through the agreements signed during the acquisition of the equity investment (€35 million).

Capital gains arising from the valuation using the equity method net of continuing operations (€140 million) refer to the joint-control companies TAG (€90 million) and TIGF (€50 million).

Capital losses arising from the valuation using the equity method (€24 million) refer to the share of the negative result of the joint-control companies and associates. With specific reference of the equity investments, the negative result of GasBridge 1 B.V. and Gasbridge 2 B.V (-€10 million in total), which includes the effects of the impairment on the equity investments of the latter held in Interconnector UK (€21 million).

With specific reference to the recoverable value of the equity investments in GasBridge 1 B.V. and GasBridge 2 B.V in Interconnector UK, the valuation was conducted over a time horizon of five years, through the Discounted Dividend Model (DDM) and using the rate calculated according to the cost of equity, which takes account of the risk premium as the discount rate. After the fifth year, projected cash flows using the perpetuity method based on the estimated dividend of the last year of the plan with a zero growth rate were used. The discount rate used for the estimation of the flows was around 6.5%.

Sales and repayments (€2 million) relate to the reduction in the book value of the equity investments in GasBridge 1 B.V. and GasBridge 2 B.V. following the distribution to shareholders of part of the share premium reserve generated during the establishment of the companies.

The decrease in dividends (€148 million) essentially involves the joint-control companies TAG (€75 million), TIGF (€43 million) and GasBridge 1 B.V. and GasBridge 2 B.V. (€17 million in total).

Other changes (€11 million) relate essentially to: (i) the book value of the residual equity investment (13.5%) of Snam S.p.A. in Italgas S.p.A. (formerly ITG Holding) resulting from the operation of separating Italgas Reti S.p.A. from Snam S.p.A²⁷ (+€153 million); (ii) the elimination of the equity investments of Snam S.p.A. in the jointly controlled companies in the distribution segment following the above-mentioned separation operation (-€173 million).

Equity investments are not collateralised.

Consolidated companies, joint ventures, associates and other significant equity investments are indicated separately in the appendix “Significant shareholdings, associates and equity investments of Snam S.p.A. at 31 December 2016”, which is an integral part of these Notes.

Other information on equity investments

In accordance with the provisions of IFRS 12 – “Disclosure of interests in other entities”, the economic and financial data for joint ventures and associates are provided below.

Investments in joint ventures

The IFRS-compliant economic and financial data for each significant joint venture²⁸, are reported below:

Information on Investments in joint ventures

TIGF Holding S.A.S.

TIGF Holding SAS is a company operating under French law, which, through TIGF Investissements SAS (a wholly owned subsidiary of TIGF Holding), controls 100% of TIGF SA.

TIGF SA (Transport et Infrastructures Gaz France) operates in the transportation and storage of natural gas in south-west France. Natural gas transportation in France is a regulated activity.

At 31 December 2016, TIGF Holding S.A.S. had the following shareholders: Snam S.p.A. (40.5%), Singapore sovereign wealth fund GIC (31.5%), EDF (18%, through a fund dedicated to liabilities arising from the disposal of nuclear assets) and Crédit Agricole Assurances (10%, through Prévoyance Dialogue, a company owned by Crédit Agricole).

TIGF Holding SAS’s consolidated financial statements include TIGF Investissements SAS and TIGF SA.

The corporate governance rules stipulate that decisions on significant activities must be taken with the unanimous consent of shareholders Snam and GIC.

Trans Austria Gasleitung GmbH (TAG)

Trans Austria Gasleitung GmbH (TAG) is a company operating under Austrian law that is active in the natural gas transportation segment, and it owns the gas pipeline that links the Slovakian-Austrian border to the Tarvisio entry point.

Natural gas transportation in Austria is a regulated activity.

As at 31 December 2016, Snam S.p.A. holds 84.47% of the share capital, entitling it to 89.22% of the economic rights. The remainder of the share capital is held by Gas Connect Austria GmbH (GCA).

The contractual agreements drawn up between Snam, TAG and (GCA) also stipulate that if TAG is not capable of self-financing, the other companies must finance it according to the equity investment held by each shareholder.

The corporate governance rules stipulate that decisions on significant activities must be taken with the unanimous consent of shareholders Snam and GCA.

AS Gasinfrastruktur Beteiligung GmbH

AS Gasinfrastruktur Beteiligung GmbH is a company under Austrian law jointly controlled by Snam S.p.A. and the Allianz Group, respectively owning 40% and 60%.

The company owns 100% of the company under Austrian law AS Gasinfrastruktur GmbH, which, in turn owns 49% of the share capital of Gas Connect Austria GmbH, a subsidiary of OMV AG.

The corporate governance rules of AS Gasinfrastruktur Beteiligung GmbH stipulate that decisions on significant activities must be taken with the unanimous consent of shareholders Snam and Allianz.

Gasbridge 1 B.V. and Gasbridge 2 B.V.

Gasbridge 1 B.V. and Gasbridge 2 B.V. are two companies operating under Dutch law that are equal-stake joint ventures of Snam S.p.A. and Fluxys Europe B.V.

The two companies hold equal shares in the following equity investments:

• 31.5% of Interconnector UK Ltd, a subsidiary of Fluxys;
• 51% of Interconnector Zeebrugge Terminal SCRL;

The corporate governance rules stipulate that decisions on significant activities must be taken with the unanimous consent of the two shareholders Snam S.p.A. and Fluxys Europe B.V.

Significant restrictions

Pursuant to the provisions of IFRS 12, the major significant restrictions on investee companies’ ability to transfer funds to Snam in the form of dividends, loan repayments or advances appear below.

TIGF Investissement SAS

The payment of interest on the residual nominal amount of the €670 million convertible bond (of which Snam has subscribed €272 million) may be deferred at the discretion of the issuer TIGF Investissement. The bond debt is subordinate to the outstanding bank loans.

Investments in associates

The IFRS-compliant economic and financial data for all equity-accounted associates²⁹ not deemed to be significant are reported below:

Information on investments in associates

Trans Adriatic Pipeline AG (TAP)

Trans Adriatic Pipeline A.G. (TAP) is a Swiss company formed to design, develop and build a new gas pipeline, currently under construction, which will extend from the Greek-Turkish border to Italy (at the new entry point in San Foca-Melendugno), crossing Greece and Albania.

At 31 December 2016, TAP A.G. had the following shareholders: Snam S.p.A. (20%), Socar (20% through AzTAP GmbH), BP (20% through BP Gas Marketing Ltd), Fluxys (19% through Fluxys Europe B.V.), Enagas (16% through Enagás Internacional S.L.U.) and Axpo (5% through Axpo Trading AG).

Based on the agreements entered into, the shareholders are obliged to finance the project pro rata to their respective shareholding, until the pipeline becomes operational, both through a shareholder’s loan and through the subscription of share capital increases. The potential expansion of the pipeline capacity is subject to an assessment on economic viability and, thus, on TAP’s economic interest, also in accordance with the exemption decision of the Regulatory Authorities.³⁰

Under current corporate governance rules, none of TAP’s shareholders is able to exercise control over the company, including in a joint capacity.

Italgas S.p.A.

Italgas S.p.A. is an Italian company which controls 100% of Italgas Reti S.p.A., Napoletanagas S.p.A. and Acam Gas S.p.A., companies operating in the natural gas distribution segment in Italy.

Natural gas distribution is a regulated activity.

At 31 December 2016, following the separation of the natural gas distribution business from Snam S.p.A., Italgas S.p.A.’s shareholders were: Snam (13.5%), C.D.P. Reti S.r.l. (25.08%), C.D.P. Gas S.p.A. (0.97%) and the remaining part owned by third parties.

On 7 November 2016, the date that the above-mentioned separation operation took effect, the shareholder’s agreement, signed on 20 October 2016 by CDP Reti S.p.A. and CDP Gas S.r.l., involving all the shares held by each of them in Italgas S.p.A., became effective. The shareholder’s agreement constitutes a block voting shareholder’s agreement, with Snam having the right of early withdrawal if, in the event of Snam opposing the vote of the syndicated shares on reserved subjects of an extraordinary nature, Snam does not sell its equity investment in Italgas within the next 12 months (accelerated exit). Transfers of Snam’s equity investment in Italgas S.p.A. (even in the case of accelerated exit) are subject to the consent and pre-emptive rights of CDP Reti, as well as to the obligation of a takeover by a third party. Snam may also increase its equity investment. The agreement is for three years, renewable unless notice is given; if Snam does not renew it, CDP Reti will have the option to purchase Snam’s equity investment in Italgas at the fair market value.