12 Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term financial liabilities

Short-term financial liabilities, with an amount up to €1,696 million (€1,351 million at 31 December 2015), and long-term financial liabilities, including short-term portions of long-term liabilities with an amount up to €12,502 million (€12,445 million at 31 December 2015), break down as follows:

Short-term financial liabilities

Short-term financial liabilities, with an amount up to €1,696 million (€1,351 million at 31 December 2015), mainly relating to uncommitted variable-rate lines of credit (€1,673 million). The increase compared to 31 December 2015 (€345 million) is mainly due to net releases of uncommitted bank credit lines (€350 million).

There are no short-term financial liabilities denominated in currencies other than the Euro¹¹.

The market value of short-term financial liabilities is the same as their book value.

Long-term financial liabilities and short-term portions of long-term financial liabilities

Long-term financial liabilities, including short-term portions of long-term liabilities, with an amount up to €12,502 million (€12,445 million at 31 December 2015), of which €2,168 million are related to the short-term portions and €10,334 million are related to long-term portions.

The increase compared to 31 December 2015 (€57 million) is mainly due to net releases of committed bank credit lines (€245 million) forming a part, in particular, of the syndicated loan, partially offset by the reduction in bond loans (-€172 million) largely as a result of the redemption of a bond maturing in January 2016 with a nominal value of €150 million.

The breakdown of bond loans (€9,639 million), indicating the issuing company, the year of issue, the currency, the average interest rate and the maturity, is provided in the following table.

Payables for bank loans (€2,862 million) relate to term loans, of which €1,617 million concern European Investment Bank (EIB) funding.

There are no other long-term bank loans denominated in currencies other than the Euro.

The weighted average interest rate on bank loans used (excluding loan contracts with the EIB) was 0.38% (0.40% for the first half of 2015).

There were no breaches of loan agreements as at the reporting date.

Snam has unused committed and uncommitted credit lines of €3.7 billion and €0.5 billion, respectively.

Financial covenants and negative pledge commitments

At 30 June 2016, Snam had medium- and long-term loans from a pool of national and international banks. Some bilateral loan agreements were also entered into with these banks. The main medium-/long-term loans are subject, inter alia, to the usual covenants imposed in international market practice, e.g. negative pledge, pari passu and change of control clauses.

In particular, the syndicated loans and bilateral loans are subject, inter alia, to a negative pledge covenant pursuant to which Snam and the Group subsidiaries are subject to limitations in terms of pledging real property rights or other restrictions on all or part of the respective assets, shares or merchandise, and/or documents representing merchandise; this covenant is subject to set expiry dates and to exceptions on restrictions for which the creation and/or existence is explicitly permitted.

At 30 June 2016, Snam also had medium/long-term loans taken out with the European Investment Bank (EIB), the contractual clauses of which are broadly in line with those described above. Exclusively for the EIB loans, the lender has the option to request additional guarantees if Snam’s credit rating is downgraded to BBB- (Standard & Poor’s/Fitch Ratings Limited) or Baa3 (Moody’s) by at least two of the three ratings agencies.

At 30 June 2016, the financial liabilities subject to these restrictive clauses amounted to approximately €2.9 billion.

Failure to comply with the covenants established for these loans - in some cases only when this non-compliance is not remedied within a set time period - and the occurrence of other events, such as cross-default events, some of which are subject to specific threshold values, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan.

Bonds, with a nominal value of €9.6 billion, refer to securities issued under the Euro Medium Term Notes programme. The covenants set for the programme’s securities reflect international market practices and relate, inter alia, to negative pledge and pari passu clauses. Specifically, under the negative pledge clause, Snam and its significant subsidiaries are subject to limitations in relation to the creation or maintenance of restrictions on all or part of their own assets or inflows to guarantee present or future debt, unless this is explicitly permitted.

Failure to comply with these covenants - in some cases only when this non-compliance is not remedied within a set time period - and the occurrence of other events, such as cross-default events, some of which are subject to specific threshold values, may result in Snam’s failure to comply and could trigger the early repayment of the relative loan.

Specifically with regard to the covenants related to the separation of Italgas from Snam (the Transaction), note the following: (i) with regard to the bank loans at 30 June 2016, Snam obtained the required consent from financial institutions to finalise the Transaction, which was subject, among other things, to the completion of the Transaction; (ii) with regard to the bonds issued as a part of the Euro Medium Term Notes Programme, as dictated by the agreement, Snam will request the approval of bondholders to allow it to sell a substantial portion of its industrial business as a result of the Transaction; (iii) with specific regard to the loans funded by the European Investment Bank, EIB has issued its consent for the completion of the Transaction subject to certain termination conditions such as, in particular, EIB’s receipt of the spin-off document in a form and substance satisfactory to EIB, and Snam’s updated business plan, and any other transaction-related documentation available to creditors indicating that Snam’s credit risk and overall industrial operations are not negatively affected by the transaction. With regard to the two loans issued by EIB to Snam to fund Italgas projects, EIB has stated it is willing to agree to the assumption with release for Snam subject to certain conditions being met (including the approval of EIB’s decision-making bodies in this regard).

Taking account of what is described in this paragraph, it should be noted that as at 30 June 2016, there were not events not in compliance with the aforementioned obligations and contractual covenants.

Breakdown of net financial debt

The breakdown of net financial debt, showing related-party transactions, is provided in the following table: