Core business development agreements
Snam and Iren sign an agreement to acquire a stake in the OLT - Livorno regasifier
On 20 September 2019 Snam and the Iren Group signed an agreement for the acquisition by Snam of a 49.07% stake of the share capital of OLT (Offshore LNG Toscana), the company that constructed and manages the offshore regasification terminal (FSRU – Floating Storage and Regasification Unit) located off the coast of Tuscany between Livorno and Pisa. The acquisition was completed on 26 February 2020x, following the prior approval of the competent authorities (Anti-trust Authority).
The consideration paid by Snam to the Iren Group for the acquisition of the entire equity investment in OLT owned by Iren Mercato S.p.A., as well as the remaining share of a shareholders’ loan from Iren S.p.A. in favour of OLT stands at around €332 million in total. The amount, paid by Snam with its equity, may be subject to possible contractually-required price adjustment mechanisms.
Following the transaction, Snam took control of the regasification terminal in conjunction with First State Investments International Ltd. which, via the subsidiary FS SP S.àr.l., owns 48.24%.
International Business Development
Establishment of Snam Gas & Energy Services to monitor the Chinese market
In 2019, the Chinese company Snam Gas & Energy Services was established in Beijing, wholly owned by Snam B.V. Snam’s interest in the Chinese market is linked on the one hand to the strong growth in gas consumption (190 BCM in 2015; 310 BCM in 2019) and the prospects for further growth in the medium term and on the other hand the need for new gas infrastructures (pipeline, storage and regasification capacity, biogas and biomethane plants) and the evolution of this market with the creation of a company that is solely responsible for the main infrastructure for gas and oil through the consolidation of the assets now owned by the 3 Major Oil & Gas.
Thanks to this presence, Snam has continued and started to implement the intense positioning and accreditation activities with the main stakeholders previously launched and Memorandum of Understanding with financial players have been signed (Bank of China, ICBC, Silk Road Fund - this last during the State visit to Italy of the President of the Republic of China Xi Jinping) and large companies in the energy segment (among others a strategic Memorandum of Understanding signed with CNPC - Petrochina during the CIIE in Shanghai).
During 2019, Snam, also through Snam Gas & Energy Services, signed the first service contracts and initiated the provision of the same to 3 different Chinese counterparties and to an additional company (in which a Chinese counterparty holds a stake) with a focus on storage area.
In November 2019, through the subsidiary Snam 4 Environment, Snam completed the acquisition from Ladurner Ambiente and from AB Invest of a stake of 82.63% of Renerwaste S.r.l., one of the largest companies operating in Italy in biogas and biomethane infrastructures, for an outlay at the closing, including the repayment of the shareholders’ loan, of around €46 million. The transaction, entirely funded through equity, includes the possibility of Snam acquiring the remaining 17.37% of the share capital owned by Ecopartner from June 2020. Renerwaste with its three plants located, respectively, in the provinces of Lodi, Milan and Tortona, generates annual revenues of more than €20 million and employs around 50 people.
Snam and Infore Environmental Group: Memorandum of Understanding (MoU)
At the end of 2019 Snam signed a Memorandum Of Understanding with the Infore Environmental Group, an environmental services company listed on the Shanghai Stock Exchange and the controlling shareholder of Ladurner Ambiente, for potential joint initiatives for the development of biogas and biomethane infrastructure in China.
Biomethane initiatives: binding letter of intent
In November 2019 Snam and Femogas also signed a binding letter of intent aimed at negotiating and defining agreements to launch a strategic partnership in infrastructure for biomethane from agriculture through the entry, with a 50% stake, into Iniziative Biometano, a company operating in Italy with five biogas plants, for which there is a plan for conversion to biomethane, and with various plants in the process of authorisation or construction.
Thanks to these two initiatives, Snam can increase its expertise in the management and running of plants both in the agricultural biomethane chain and the FORSU chain (organic fraction of municipal solid waste), perfectly complementary to the expertise in the design, development and construction of IES Biogas, a subsidiary of Snam since 2018 and leader in the creation of biogas and biomethane plants in Italy and abroad.
Tamoil and Snam: contract for 5 new natural gas service stations
On 20 March 2019, through the subsidiary Snam4Mobility, Tamoil and Snam signed a contract for the construction of an initial batch of 5 natural gas refuelling stations in Italy, promoting the development of sustainable mobility for cars and lorries in Italy.
The agreement involves the collaboration of Tamoil and Snam4Mobility for the design, construction, maintenance and running of 4 new CNG (compressed natural gas) facilities and a new L-CNG (liquefied and compressed natural gas) facility within the national network of Tamoil distributors.
FS Italiane, Snam and Hitachi rail: Memorandum of Understanding (MoU) on methane trains
On 28 March 2019, FS Italiane, Snam and Hitachi Rail signed a Memorandum of Understanding (MoU) that aims to convert part of the current fleet of trains of the Fondazione FS Italiane from diesel to methane, as part of the promotion of sustainable mobility in public transport in Italy. The Memorandum involves the launch of a pilot project for the transformation of one or two Fondazione FS Italiane rail cars that run on diesel into more advanced models running on liquefied natural gas (LNG) or compressed natural gas (CNG). Following a feasibility study, the companies will identify a larger number of trains to extend the trial to.
EIB financing for sustainable mobility projects
To support the initiatives as part of sustainable mobility, on 6 June 2019 Snam signed the first loan with the European Investment Bank (EIB) to support investments promoted by the subsidiary Snam4Mobility, for a nominal value of €25 million. The investments that are the subject of the loan agreement involve the construction in Italy of 101 CNG (compressed natural gas) and 9 L-CNG (liquefied and compressed natural gas) refuelling stations for a total of around €50 million. The loan, according to EIB practice, will be equal to a maximum of 50% of the cost of the investments, has an amortising structure, maturity in December 2031 and a fixed rate of 0.55%. The loan complements the contribution of the European Union provided under the CEF programme (Connecting Europe Facility) of €1.3 million, which last December approved the Snam4Mobility’s project for constructing 9 L-CNG stations.
Snam and IP: understanding for constructing 26 new refuelling facilities
On 26 July 2019, Snam and IP signed an agreement aimed at constructing an initial batch of 26 new natural gas refuelling facilities, which will open in the network of IP distributors from 2020 throughout Italy.
The new openings represent the first phase of the implementation of the framework agreement signed in 2018 between IP and Snam to create up to 200 new methane stations in Italy. The initiative comes under the commitment of the two companies to promote sustainable mobility.
Snam and IP have jointly identified the IP refuelling stations in the ordinary and motorway network at which to install the methane supply facilities for cars (CNG - compressed natural gas), two of which will also house LNG (liquefied natural gas) systems for heavy vehicles.
The initiatives described above are part of Snam’s commitment to natural gas sustainable mobility in Italy, for rail transport as well as road and maritime transport. The company is making investments to give the CNG and L-CNG distribution network in Italy a boost, through direct investments and agreements with other sector operators, and to promote the development of a biomethane (zero CO2 renewable gas) supply chain in Italy.
In Italy, Snam, through Snam4Mobility, has already created 9 new stations out of a total of 103 contracted stations, with the goal of creating a total of 300 in the years to come.
Snam, OMV and TAG sign a memorandum of understanding (MoU) for sustainable mobility
On 24 September 2019, Snam, its investee TAG and OMV signed a memorandum of understanding to promote LNG-based sustainable mobility in Austria.
The purpose of the agreement is to explore potential opportunities for LNG in the Austrian transportation sector, ranging from the possible construction of a small-scale LNG plant to developing procurement and the LNG market in Austria.
Agreements for the reclassification of energy for condominiums
On 10 April 2019, Snam, through its subsidiary TEP Energy Solution operating in the energy efficiency sector, and UniCredit signed an agreement to facilitate the energy reclassification of residential buildings in Italy, making them more sustainable and safe. The understanding involves the possibility of the bank providing condominiums with credit facilities on the projects proposed by TEP as part of energy efficiency and improvements against earthquakes, such as, for example, the construction of “thermal walls”, the replacement of window frames and the upgrading of heating systems.
Under this scope, it was followed by the collaboration agreement signed on 5 June 2019 by TEP with Intesa Sanpaolo to promote the energy reclassification of buildings to energy to residential and service sector use.
The above-mentioned agreements include the proposal of a full service, that goes from the financial and technical consultation to the provision of the grant to the realisation of the project, in dedicated conditions and reduced times. Specifically, the condominiums can take advantage of bank loans to cover the share not included in the discounts under exiting legislation as part of the Ecobons (for a share of between 70% and 75% of the amount of the works) and Sismabonus (for a share of between 80% and 85% of the amount of the works).
TEP Energy Solution, on the other hand, will propose the CasaMia product, until now offered to around 800 condominiums throughout Italy, which is aimed at the energy reclassification of the buildings, financing the works through savings in consumption and the sale of a tax credit linked to the Ecobonus and Sismabonus system.
On 11 November 2019, through the wholly-owned company Asset Company 4 S.r.l., Snam completed the acquisition of 100% of the share capital of TEA Servizi S.r.l. (TEA), Energy Service Company (ESCo) active in the design, construction and running of thermohydraulic and electric plants for industrial customers, with a special focus on small and medium businesses. The revenues of the area acquired were around €3 million in 2018. The initiative allows Snam to integrate its range of services offered to industrial customers, adding the expertise of plant engineering design, running and maintaining the current proposal developed through TEP Energy Solution.
On 28 February 2019, Snam S.p.A. concluded the issuing of its first Climate Action Bond for a sum of €500 million, with an annual coupon of 1.25% maturing on 28 August 2025. Through the issuing of the first Climate Action Bond in Europe, Snam aims to consolidate its role in energy transition in Europe, promote market awareness of market investors to the company’s ESG (Environmental, Social and Governance) initiatives and investments and diversify its investor base.
On 12 September 2019, Snam S.p.A. also concluded a bond issue in two tranches of a nominal equal, respectively, to €500 and €600 million, for a total of €1.1 billion, at a fixed rate maturing, respectively on 12 May 2024 and 12 September 2034. The bonds come under the pre-funding strategy of maturities relating to 2020 with a view to reducing the cost of borrowing and increasing the average maturity.
The above-mentioned bonds come under the scope of the EMTN (Euro Medium Term Note) Programme approved by the Board of Directors on 2 October 2018, later renewed by the Board of Directors as described in the paragraph “Annual renewal of the EMTN programme”.
Euro Commercial Paper Programme
On 19 March 2019, the Board of Directors of Snam approved the increase of the amount of the Euro Commercial Paper programme (“ECP Programme”), approved on 2 October 2018 from €1 billion to €2 billion.
The issuing of the Euro Commercial Paper may take place within a 2 year deadline from 2 October 2018 for a maximum total value of €2 billion, plus the corresponding amount of the Euro Commercial Paper repaid at any given time during the same period, to be placed with institutional investors according to the terms and conditions of the ECP Programme. The total nominal value of the Euro Commercial Papers issued under the ECP Programme cannot, in any event, exceed the maximum limit of €2 billion.
The increase in the amount of the ECP Programme allows Snam to diversify short-term financing instruments with a view to ever increasing flexibility in the process of optimising treasury arrangements.
The Euro Commercial Papers at 31 December 2019 totalled €2 billion, equal to the maximum permitted limit of the programme.
EIB loans for infrastructure projects in the transportation and storage sectors
On 28 January 2019, Snam signed a loan agreement with the European Investment Bank (EIB) for €135 million to create infrastructure projects in the natural gas transportation and storage sectors, with a fixed rate of 1.372% to be repaid through an amortisation plan maturing in 2038.
On 31 July 2019 Snam also signed a loan agreement with the EIB for €105 million for the creation of infrastructure projects in the natural gas transportation sector, for a duration of 20 years (maturing on 30 June 2039) with a fixed rate of around 0.64%.
Annual renewal of the EMTN programme
On 2 October 2019, Snam S.p.A.’s Board of Directors approved the annual renewal of the EMTN (Euro Medium Term Note) programme launched in 2012, increasing the maximum overall value from €10 to €11 billion, one of the purposes of which is to ensure adequate flexibility during market upswings.
As a result, the Board authorised the issuing, to take place by 2 October 2020, of one or more further bond loans, to be placed with institutional investors mainly operating in Europe. The total nominal value of issued bonds in circulation in each instance may not exceed the maximum limit of €11 billion.
The EMTN Programme is an effective instrument for obtaining significant financial resources on the market quickly and at competitive prices, in line with the planned development of the target financial structure of the company. The bonds issued can be listed on one or more regulated and unregulated markets (so-called multilateral trading systems).
On 2 December 2019 Snam successfully concluded the buyback on the market of its bonds for a total nominal value of €597 million. The effects of this transaction on the 2019 income statement (€38 million, €29 million excluding the tax effect) are essentially represented by the charges deriving from the difference between the outlay deriving from the repurchase of part of the bonds on the market and the amortised cost valuation of the bonds themselves.
Through this operation, Snam continues the process of optimising its debt structure and continuously improve the cost of capital, in line with its objectives.
The year just ended represents the last of the five years of the Liability Management which, from 2015 to the present day, has contributed to reducing Snam’s cost of borrowing from 2.4% in 2016 to 1.1% in 2019.
New share buyback plan and cancellation of treasury shares with no share capital reduction
On 2 April 2019 the Ordinary Shareholders’ Meeting of Snam shareholders authorised, following the withdrawal of the resolution authorising the purchase of treasury shares taken by the Ordinary Shareholders’ Meeting on 24 April 2018, for the remaining part not carried out, the purchase of treasury shares, to take place on one or more occasions, for a maximum of 18 months from the date of the Meeting of 2 April 2019, with a maximum outlay of €500 million and, in any event, up to a maximum of 126,664,660 shares without exceeding 6.50% of the subscribed and released share capital (with regard to treasury shares already owned by the Company).
The Extraordinary Shareholder’s Meeting held on the same date also approved the cancellation of 74,197,663 treasury shares with no nominal value with no reduction in the share capital and the resulting amendment of Article 5.1 of the Articles of Association. The shares were cancelled on 17 April 2019 after the amended Articles of Association were filed with the Register of Companies. As a result of this transaction, the share capital consists of 3,394,840,916 shares with no nominal value for a total value of €2,736 million (the same as at 31 December 2018). In execution of the resolution, the new buy back programme was launched on 16 December 2019).
In December 2019 a total of 8,412,920 Snam shares (equal to 0.25% of the share capital) were acquired for a cost of €39 million. At the date of this report, Snam has 102,412,920 shares in its portfolio equal to 3.02% of the share capital (168,197,663 at 31 December 2018 equal to 4.85% of the share capital).
Appointment of statutory auditors
On 23 October 2019, the Ordinary Shareholders’ Meeting of Snam S.p.A., having listened to the opinion of the Board of Statutory Auditors, approved the appointment of the independent auditors PricewaterhouseCoopers S.p.A. to conduct the audit and, at the same time, to confer, at the suggestion of the Board of Statutory Auditors, the task of the statutory audit of Snam, for the period of the financial years ended 31 December 2020 to 2028 on the independent auditors Deloitte & Touche S.p.A.
In December 2019 Snam was admitted to the cooperative compliance regime established under the scope of national tax legislation. This regime, in line with international best practice, requires an adequate system for measuring, managing and controlling fiscal risks and is based on a closer relationship of trust and collaboration with the Financial Administration. Belonging to the Cooperative compliance, which also involves the subsidiary Snam Rete Gas, will make it possible to always increase the level of certainty on important tax issues through a constant and preventive dialogue on situations susceptible to generating tax risks. Through the admission notified by the Revenue Agency, Snam and Snam Rete Gas were registered on the list of companies that operate in full transparency with the Italian tax authorities, published on the Agency’s website. The adoption of a clear and documented fiscal strategy represents the essential requirement for access to the cooperative compliance regime.
The “Tax Control Framework – Fiscal Strategy” guideline on the subject of the “Fiscal strategy of the Snam Group” represents a description of the principles that inform the Group’s tax governance, both from a strategic profile, as far as the risk appetite and the objective pursued in the long-term with regard to the tax variable are concerned, and from an operating profile, as far as the architecture of the tax risk control system or the tax control framework is concerned.
Snam’s Board of Directors exercises its governance and direction role, defining Snam’s Tax Strategy included in the Tax Control Framework and evaluating the adequacy of the organisational structure under the scope of the tax management of fiscal risk.
In this area the Board of Directors exercises overall supervision on the operation of the Tax Control Framework, through a periodic analysis of the adequate reporting of fiscal risk.