Gas Natural SDG SA to Sell a Minority Stake 20% in the Natural Gas Distribution in Spain Conference Call

Aug 04, 2017 AM CEST
GAS.MC - Gas Natural SDG SA
Gas Natural SDG SA to Sell a Minority Stake 20% in the Natural Gas Distribution in Spain Conference Call
Aug 04, 2017 / 06:30AM GMT 

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Corporate Participants
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   *  Abel Arbat
   *  Rafael Villaseca Marco
      Gas Natural SDG, S.A. - CEO, MD and Executive Director 

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Presentation
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 Abel Arbat,    [1]
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 Good morning, everyone, and thank you for joining this conference call this morning. This is Abel Arbat speaking from Investor Relations of Gas Natural. The purpose of this call is to provide you with an overview of the transaction we announced yesterday on seeking the sale of a 20% minority equity interest in our investment around distribution business in Spain. This conference call will be held in English. There won't be an opportunity for Q&A during the call, but the Investor Relations team remains at your disposal for any further questions you may have following the call.

 With that said, I'm going to hand over to our CEO, Mr. Rafael Villaseca, who will give you an overview of the transaction.

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 Rafael Villaseca Marco,  Gas Natural SDG, S.A. - CEO, MD and Executive Director    [2]
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 Good morning, everyone, and thank you for joining this conference call. We are blessed to have reached an agreement with 2 well-renowned, long-term institutional investors, Allianz Capital Partners and Canada Pension Plan Investment Board for the sales of 20% minority equity interest in our natural gas distribution business in Spain. We strongly believe the transaction is a success for Gas Natural Fenosa and it crystalizes significant value for our shareholders. Gas Natural Fenosa has been advised by JPMorgan and Morgan Stanley in this transaction.

 During the next minutes, I will try to summarize the key highlights of this highly strategic transaction, which is an important one for GNF as it means significant progress on delivering on the key pillars of our [excellency] strategy plan, maximizing value creation for all our shareholders through portfolio management.

 This is a transaction (inaudible) key strategic asset for Gas Natural Fenosa, which is part of our DNA and a core business, and we are extremely happy with the terms achieved, which we believe reflect the [technicalities] of this unique asset and crystalize significant value for our shareholders. I would like to spend some time providing you with an overview of 3 main topics: first, the strategic rationale of the transaction for GNF; second, the key terms of the transaction and its financial impact; and third, some [consideration] for our approach to use of proceeds.

 To start, let me spend some time on the strategic rationale of this transaction for Gas Natural Fenosa and why are we doing it now. First, we believe the current environment is supportive of this type of transaction. Interest rates are low, infrastructure assets are in high demand and asset valuation are very attractive. Indeed, we are confident that the transaction crystalize significant value for GNF shareholders in light of the valuation (inaudible) that is the valuation of these assets currently embedded in our stock price. Gas Natural distribution in Spain is a unique and high-quality asset and the valuation achieved in this transaction is a reflection of this.

 We are the leader and [increment] market player in the Spanish gas distribution market, holding a market share of around 30% by [network plants] and connection points, significantly ahead of any other competitors. This makes our business unique and [scarce] assets not only in the Spain, but globally. Moreover, we run a highly efficient operation and deliver a high-quality customer service [liberation] on our unique [state] with outstanding track record and unparalleled know-how in this business.

 Second, it is important to highlight that post transaction, Gas Natural Fenosa will continue to own an 80% equity share holding on the business, hence fully [contributing] and retaining control of the business and its operations. The sale of 20% interest is significant as an absolute amount in the context of GNF overall. This ensures that the transaction is regional and helps crystallize value for our shareholders and also helps rebalance our overall business mix. At the same time, retaining an 80% shareholding is consistent with our strong commitment to continue [the level of] this business, which remains a core part of GNF's portfolio.

 Together with our new partners, Allianz and CPPIB, we will continue executing on our long-term strategy, investing future growth by an increased gas penetration in Spain, which should in turn support the growing gas demand as well as the greater use of gasification and (inaudible) infrastructure in Spain, which are currently underutilized. Third, the proceeds from this transaction enable GNF to take advantage of the investment opportunity in key rural areas achieve attractive returns and maintain a balanced portfolio.

 In summary, the transaction crystallizes significant value for GNF shareholders and is consistent with our strategic [figure] of portfolio management optimization toward value creation.

 Continuing with overview of the transaction. Let me spend some time on the key terms of the transaction and its financial impact on Gas Natural Fenosa. First and foremost, the transaction implies an enterprise value of 100% of our Gas Natural Distribution business of EUR 15.9 billion [equating] to 15.7x enterprise value under EBITDA 2016. This is indeed a significantly higher valuation than the one attributed to this business by the [equity ratios] community are looking approximately EUR 4 billion in value. As part of the transaction, Gas Natural Fenosa will enter into EUR 6 billion long-term intercompany financing agreement with the company holding the natural gas distribution assets in Spain. This long-term intercompany financing will not impact Gas Natural Fenosa's capital structure nor rating. [The private] equity value for 100% is EUR 7.5 billion. As a result, in consideration for the sale of the 20% equity interest, Gas Natural Fenosa will receive a payment of EUR 1.5 billion in cash from the [construction] on completion.

 Second, let me give you an overview of the financial (inaudible) of transaction. Consolidated EBITDA is not affected, given that GNF will continue to fully consolidate Gas Natural distribution assets. Gas Natural Fenosa gross debt on a consolidated basis remained the same, although net debt will be reduced by the EUR 1.5 billion proceeds to be received. The rating agency's GNF rating will not be affected and not actually impacting the transaction. The transaction will generate positive results in shareholders equity of approximately EUR 1 billion. Net income is expected to decrease by approximately EUR 80 million (inaudible) of the minority interest, not taking into account any reimbursement of proceeds leverage (inaudible).

 Third, our new partners, Allianz and CPPIB, will have minority rights consistent with the combined equity interest in the business.

 Moving into the fourth point. Let me spend some time on our view around the use of proceeds. As you have seen, proceeds from the transaction will be used to support future investment needs of existing projects, with any excess to use into future investments, nevertheless (inaudible) of shareholder remuneration as determined by the board.

 With regards to existing projects, we currently have a number of (inaudible) different line developments. In Spain, we have a clear path for organic growth, mainly through the recently awarded Renovables project, including the 667 megawatts wind projects awarded in May, which we spent an investment of up to EUR 700 million. The 250 megawatts of [portable] (inaudible) awarded in July where we expected to invest up to EUR 165 million in the period 2017-2019. The (inaudible) applying in the Canary Islands with an expected investment of approximately EUR 95 million [and the recovery] of the older-generation wind assets. Internationally, we are investing in 2 solar projects in Brazil and a wind project in Australia. And as you know, we have already secured 620 megawatts of wind project in Chile to start operation during 2018, which will also entail significant investments. All of these are accretive investment with expected returns clearly above cost of capital. Furthermore, and with regards to any excess proceeds, we shall continue to reinvest in the growth sectors outlined in our current strategic plan, including organically growing networks and notably in Latin America, as well as in contracted generation activities which are indeed experiencing robust growth as highlighted during our first half results for 2017. We aim at investing in projects which can deliver returns well above cost of capital of each specific projects in local currency and are commensurate with the underlying risk. As a matter of fact, the financial discipline toward investment we have achieved in the past and through (inaudible) return on capital on projects of 9% during the course of 2016, a level of profitability which compares very favorably versus our European peers.

 Finally, we shall continue our efforts on leverage optimization and, of course, consider shareholder remuneration, which remains a key priority to us. As you know, Gas Natural Fenosa is committed to an attractive shareholder remuneration. Our aim is to maximize shareholders value, and we are confident that this can be achieved through a combination of investment in [existing] projects, leverage optimization and shareholder remuneration. The company's quarterly analysis into (inaudible) and the (inaudible) ultimately determine the optimal use of any achieved proceeds to deliver against our objective of maximizing shareholder value.

 And to summarize, let me finish this conference call by saying that we are very pleased with this highly strategic transaction, which allows to put a firm value into our unique gas distribution business in Spain, crystalizing significant value for our shareholders. So many thanks for your attention.

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 Abel Arbat,    [3]
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 Thank you, Rafael. And with that, we've come to the conclusion of this conference call. We really hope to have given you some more insight into the strategic rationale of the transaction as well as its financial impact. And we thank you very much for your attention. Our Investor Relations team remains available for any further questions or clarifications you may have. Thank you, and goodbye.




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