Naturgy and Sonatrach have reached an agreement with Mubadala for the acquisition of 42.09% of its stake in Medgaz. After the closing of the transaction, Medgaz will become the exclusive property of Sonatrach (with a 51% stake) and Naturgy (with the remaining 49%). All this is thanks to a shareholders’ agreement, which gives them joint control of the gas pipeline linking Algeria and Spain.

The operation will allow Naturgy to transform its currante 14.95% stake in Medgaz from a financial investment with very limited government rights to a strategic stake that will allow the company to jointly control with Sonatrach.

“There is a shareholders’ agreement signed with Sonatrach, whereby decision making, the actual operation and veto rights are equally distributed”, said Francisco Reynés, executive president of Naturgy, to the media at a meeting organised by the Naturgy Foundation. “Neither of the two can make a decision without the other,” he said of his Algerian partner’s majority stake.

 

ENTRY TO A NEW FINANCIAL PARTNER

Naturgy will acquire 34.05% of Medgaz for 445 million euros through a vehicle (SPV), which can give entry to a financial partner, thus reducing the contribution of Naturgy’s capital. The SPV will be financed with a non-recourse loan of EUR 260 million to optimise its capital structure.

During the Energy Prospectives conference, organized by the Naturgy Foundation and IESE Business School, Reynés, stressed that if a partner entered, it would only be “financial”. “In no case an industrial partner. We are the industrial partner,” he added. Currently, pending this partner, this SPV will be financed with a non-recourse loan of 260 million euros, to optimize its capital structure, according to the National Commission on Markets and Competition (CNMV).

 

AN OPERATION THAT GENERATES VALUE FOR THE SHAREHOLDER

“Overall, it is a very attractive transaction for Naturgy, both because it is a strategic infrastructure asset, where we have significantly increased our control position, and because of the financial terms of the agreement, which provide an attractive price for stable and predictable long-term dividends that meet our criteria for generating shareholder value,” said Francisco Reynés Massanet.

The transaction is therefore consistent with Naturgy’s 2018-2022 Strategic Plan, which focuses on investments that generate shareholder value, with stable, predictable and low-risk cash flows, as evidenced by the fact that 100% of the pipeline’s capacity is already contracted under “send or pay” agreements in EUR until 2031, with solidly solvent counterparties.

This agreement also reinforces Naturgy’s strategic alliance with Sonatrach and Algeria’s strategic alliance with Spain. The Algerian company Sonatrach is the leading gas supplier to Spain and is also Naturgy’s fourth shareholder with a 4% stake. Furthermore, the operation doesn’t exclude the possibility of continuing EMPL’s business by renewing this concession, which expires at the end of 2021.
The closing of the operation is expected to materialize before the end of March 2020, subject to the fulfillment of certain conditions and approvals. The operation will not affect the company’s share repurchase program, foreseen in the Strategic Plan thanks to its solid cash generation and solvent balance.