32
Madrileña Red de Gas Investor Presentation August 2013 Alejandro Lafarga, CEO Javier Contreras, CFO
Madrileña Red de Gas
Investor Presentation
August 2013
Alejandro Lafarga, CEO
Javier Contreras, CFO
22
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
3
7
10
17
2
Refinancing 25
Final Remarks 30
Executive Summary
Madrileña Red de Gas (MRG) is the natural gas distribution company with perpetual
licences serving 57 municipalities in the Region of Madrid (Madrid Autonomous Community)
MRG operates 11% of the natural gas connection points in Spain, generates €177MM revenues
(98% of which are regulated) and 82.6% EBITDA margin (YE June 2013)
MRG operates in a transparent and stable regulatory framework and enjoys steady and
predictable cash flows
MRG is planning a full refinancing of the current bank debt facilities through a two-step
capital markets issuance (1)
€500MM inaugural bond off a newly established EMTN programme
€275MM 3 year term loan facility, expected to be refinanced through a second issuance
The notes are expected to be rated
Fitch: BBB (stable outlook)
S&P: BBB- (stable outlook)
3 (1) Indicative refinancing structure
MRG Overview
MRG (1) comprises two companies, namely MRG and MRG II
The two companies were divested by Gas Natural Fenosa to
comply with conditions set by the anti-trust authority (2)
– MRG was divested in 2010
– MRG II was divested in 2011
The regulated remuneration was formally set for both of these
companies shortly after their divestment based on their number
of connection points and demand profile
The shareholders of MRG, led by Morgan Stanley Infrastructure
Partners, are leading global infrastructure investors and local
Spanish investors
History Key Figures 2011-2013
Legal Structure Revenue Breakdown (2013)
107,9
176,8 177,3
73%82% 83%
0%
20%
40%
60%
80%
100%
0
50
100
150
200
250
300
2011 2012 2013
Revenues EBITDA Margin
(1) For the purpose of this presentation, MRG refers to MRG group
(2) Upon the merger of Gas Natural and Union Fenosa in 2009
€ MM YE 30 June
Source: MRG
Source: MRG
Source: MRG
4
€ MM YE 30 June
177,3
152,020,5 3,4 1,4
0
50
100
150
200
RegulatedRemuneration
OtherRegulated
Revenues
Non-RegulatedRevenues
DeferredRevenues
Total 2013
MSIP International
Holdings Coöperatief U.A.
Current Simplified MRG Structure
MSIP
Violin BV
MRG
MRG II MRG group (1)
Other
Investors
38.2% 61.8%
Key Investment Considerations
Monopolistic distribution network with perpetual licenses covering a large geographical area in
Madrid
Third largest gas distribution network in Spain with 11% market share
Stable and steadily increasing customer base made, in its vast majority, of households and small
businesses
Good network condition with limited losses/disruptions
Essential
Infrastructure
Regulatory framework based on predictable parametric formula established since 2002 and stable
since then
Regulatory framework provides incentives to distribution companies to create new connection
points generating demand and toll revenues for the Gas System
Proven Regulatory
Framework
Stable and predictable earnings with 98% of revenues generated from regulated activities
Starting remuneration set specifically by the Ministry of Industry for MRG in 2010 and 2011
Predictable additional sources of revenues with regulated tariffs
Stable and
Predictable
Financial
Performance
Low requirement for capex, which is predominantly discretionary in nature
Historically consistent and continuous level of network maintenance
Robust operational track record
Limited and
Discretionary
Capex Spending
5
22
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
3
7
10
17
6
Refinancing 25
Final Remarks 30
Spanish Natural Gas Sector
With a total natural gas consumption of 31 bcm in 2012, Spain
is the sixth largest gas market in Europe, behind UK,
Germany, Italy, France and Netherlands, and has grown by
5.1% CAGR since 2001
Spain imports all its natural gas requirements from a diverse
range of countries through international pipelines and
regasification terminals
Spain still has a relatively low penetration of natural gas (28%)
and therefore has potential to grow in order to reach
comparable EU levels (average of 54%)
The weight of natural gas in the energy mix is still below the
EU average
Spanish Natural Gas Market Overview Spanish Natural Gas Consumption
1821
2427
32 34 3539
35 3532 31
0
10
20
30
40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Bcm
Source: BP Statistical Review, June 2013
7
CAGR 2001-2012: 5.1%
Natural Gas Penetration Rate
9488 85
4839
2820
0
20
40
60
80
100
Netherlands Italy UK Germany France Spain Portugal
%
UE27: 54%
Source: PwC - Impacto socioeconómico del sector del gas natural en España, June 2013
Structure of the Spanish Natural Gas Sector
Transmission
Retail
Regasification
Pipelines
(international)
Distribution
Infr
astr
uctu
re
Co
mm
erc
ial
Wholesale Imports
Source: MRG
Spanish Natural Gas Sector (cont’d)
Natural gas from the high pressure transmission network is
transmitted into the distribution networks
– The majority are controlled by Gas Natural Fenosa
– The rest are largely controlled by international investors
The licenses granted to a natural gas distribution company on
a perpetual basis specifies its geographical area of
responsibility, where it has exclusivity to construct and own a
distribution network and has responsibility for the operation
and maintenance of the network
Spanish Natural Gas Distribution Overview Geographical Location
Distribution Companies by Connection Points (2012)
Gas Natural Fenosa
69%
Naturgas14%
MRG11%
Endesa T&D
6%
Source: Informe Trimestral de Supervisión del Mercado Minorista de Gas Natural en España, Dec
2012, CNE
Endesa’s region Naturgas’ region
Gas Natural’s region MRG’s region
Total: 7.4 MM connection points
Source: MRG
8
Natural Gas Price for Household Consumers (2012)
10.61
7.26 7.006.00 5.99 5.43 5.38
4.03
0
2
4
6
8
10
12
€ cent per kWh
Source: energy.eu, reference month: November 2012
23
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
3
7
10
17
9
Refinancing 25
Final Remarks 30
Regulatory Authorities
Ministry of Industry, Energy and Tourism (“MINETUR”)
– In charge of the infrastructure planning
– Sets and updates the regulatory framework through Laws, Royal Decrees and Ministry orders
– Sets the regulated tariffs, adjusts tolls to correct possible imbalances in the system, sets the Last Resort Tariffs (TUR)
Comisión Nacional de Energía (“CNE”)
– Key function is of technical nature to advise the government to supervise and to control
– Issues proposals and recommendations to the Ministry regarding technical issues and tariffs
– Manages the settlement system through the matrix of collections and payments
– Has conflict resolution functions for disputes, in which it acts as an objective arbitrational body
– Monitors and inspects by request of the central or regional government, for example reviews compliance of installations
Comunidad Autónoma de Madrid (“CAM”)
– In charge of the infrastructure planning in the region together with the Ministry
– Adapts and transposes the national regulations to the regional specificities
– Grants Administrative Authorizations for the natural gas facilities in the regional territory whereas municipalities grant
licences
– Monitors the distribution companies’ compliance with the regulation and develops the sanctioning processes
Key Authorities in the Regulation
10
Natural Gas Distribution Activity
Regional Monopolies with Licences to Operate Extension of Network
The activity of distribution of natural gas is subject to certain
authorizations, permits and licences granted on an exclusivity
basis
The natural gas distribution companies formally own the
distribution network and hold the licences on a perpetual basis
Licenses held by MRG were primarily acquired in the context
of the divestment processes carried out by Gas Natural upon
its merger with Unión Fenosa, following anti-trust requirements
(CNC)
The construction, transfer, modification and closing of natural
gas distribution facilities are subject to an administrative
authorisation
Therefore, the distribution operations are regulated by the
Ministry of Industry, Energy and Tourism (“MINETUR”), itself
advised by CNE
Expansion to new municipalities
– Under the law, the distribution companies in adjacent zones
are given preference versus other distributors
– Due to this factor, MRG is well positioned to receive new
licences for adjacent municipalities in the north and west of
Madrid, which are currently without access to natural gas
– In case that more than one distributor is interested in
obtaining authorisations to distribute gas in a new
municipality a tender process may be conducted by the
regional government
– From an environmental perspective, natural gas distribution
facilities are subject to a strict environmental control and
are required, in most of the cases, to obtain an
environmental impact assessment (“declaración de impacto
ambiental”) from the relevant authorities, before the
construction work starts
11
MRG Revenues – FY2013
According to Royal Decree 919/2006, all natural gas delivery installation facilities must be inspected every 5
years.
Tariffs are function of the type of recipient facilities, i.e. supply keys (IRI) for individual recipient facilities, or
IRC (internal service pipe work or gas riser, which connects the service line to each supply key of a building)
Tariffs are yearly reviewed in accordance with CPI rate and proposed by MRG to Comunidad de Madrid
Inspections
4.2%
Remuneration based on the parametric formula
Remuneration 85.7%
Generally, distributors rent meter equipment out to consumers (although alternatively meter equipment can be
owned by the customer or by a third party agent). Tariffs are function of the type of meter equipment rented
The tariffs are established annually by the MINETUR, and are reviewed at a rate of 0.75xIPH
Meter Rents
6.6%
According to Law 34/1998, distributors have the right (but not the obligation) to encourage the construction of
IRCs, in order to facilitate end consumers access to gas.
Rental prices are based on a non regulated tariff set by the company, in accordance to bilateral agreements
Tariffs are yearly reviewed in accordance with CPI rate, and proposed by MRG to Comunidad de Madrid
IRC Rents
1.6%
According to Royal Decree 1434/2002, distributors have the right to charge an activation royalty for each new
connection point or for extensions of an existing connection point.
Tariffs are yearly reviewed in accordance with CPI rate
Activation
Royalties 0.8%
Fee received by the distributor for services provided in-house (e.g. change of a gas meter)
Revenues depend on the number of clients and prices set freely by the company for each service
Home services
& others 0.8%
Regulated 12
According to Royal Decree 1434/2002, distributors have the right to charge a service line royalty for each
connection point connected to a service line at the moment the connection point is activated. These revenues
are deferred over 20 years.
Tariffs are reviewed annually by at a rate of 0.75xIPH
Service lines
Royalties 0.3%
Distribution Remuneration Regime
MRG starting remuneration was set by MINETUR, as recently
as in 2010 and 2011, in the context of the divestment
processes carried out by Gas Natural along its merger with
Unión Fenosa
In return for providing the gas distribution services, distribution
companies are remunerated based on a parametric formula
The parametric remuneration formula is applied annually to
the whole sector, allowing unitary prices for new connection
points and incremental unit of demand to be derived.
Remuneration for the year “n” is calculated during the month
of December of year “n-1”, based on the distribution
companies’ forecasts of connection points variations and
demand. Once actual figures are known (in year n+1),
remuneration for year “n” is updated, and subsequent
adjustments are included in future remunerations
Remuneration Regime Parametric Remuneration Formula
RDn = RDn-1 x [1 + IPHn-1 x f] x [1 + ΔAcI<4 x Fcl<4+ ΔAD<4 x FD<4 + ΔAD>4 x FD>4]
RDn Total remuneration for the sector for year “n”
RDn-1 Remuneration of previous year (“n-1”)
IPHn-1 (Consumer Price Indexn-1 + Producer Price Indexn-1)/2
f IPH Efficiency factor, usually set at 0.85; for 2013 and
due to current economic conditions MINETUR set it at 0
ΔAcl Change in number of connection points in networks with
pressure under 4 bars
Fcl Connection Points efficiency factor set at 0.426
ΔAD Demand variation in networks with pressures under or
above 4 bars
FD Demand efficiency factors - for both the demand below
and over 4 bars - set at 0.142
13
The parametric formula considers four key revenue blocks:
– Prior year remuneration
– Inflation index, through IPH
– Growth in connection points on pressure under 4 bar
(typically residential and small businesses)
– Growth in demand, both under and above 4bar
The formula incentivizes natural gas distribution companies to
grow and increase the saturation of their network, as revenues
are based on connected customers and associated demand
Remuneration Factors
Regulatory Settlement System
Description
Distribution companies stand at the end of the gas settlement system. Distribution companies collect “TPA” (third party access) tolls
due to the whole distribution and transmission segments (c.80% of the gas system income) directly from suppliers. Consequently
distribution companies collect cash in advance and this creates a positive working capital effect
In terms of payment risk, distribution companies enjoy several layers of protection. Distribution companies charge directly suppliers
(such as Gas Natural, Endesa, Iberdrola, Galp) from which they collect the tolls through monthly TPA invoices. There are regulatory
requirements for suppliers to present strong creditworthiness
Moreover, the distribution companies located in areas with a higher demand (such as MRG) usually collect tolls for an amount that
exceeds their regulated remuneration. Therefore, they are usually net debtors to the system
Settlement Chain
14
End
ConsumerSourcing Regasification Storage
PrimaryTransmission
Secondary
TransmissionDistribution
Sourcing
Contract
Regasification
TollsStorage
Tolls
Entry Capacity
Tolls
Distribution
Tolls
Supply Contract
CNE
Physical Gas
Flow
Economic Flow
Activity Reports
Free Competition Regime
Activities
Natural Monopoly Regime
Activities
Supply
Spanish Natural Gas Tariff Deficit
Origin of the Gas Tariff Deficit Historical Accumulated Deficit Evolution
Comparison to Electricity (as of 31 Dec 2012)
The Spanish gas system has historically enjoyed
economic balance but since 2011 a non structural increase
in tariff deficit has been observed
The key drivers of this deficit are:
– Reduced utilisation of CCGT power generation, and
thereby associated natural gas consumption, leading to
lower tolls collection
– Newly installed gas storage and regasification capacity,
leading to increased costs to the system
124
182
118
302 298
0
100
200
300
400
2008 2009 2010 2011 2012
€ MM
26.062
2980
10.000
20.000
30.000
40.000
Electricity Natural Gas
Accumulated Deficit (€m)
918
40
0
400
800
1.200
Electricity Natural Gas
Deficit per Client (€ / client)
Source: CNE, 2013
Source: CNE, Informes sobre Resultados Liquidaciones 2008-2012
15
Gas Tariff Deficit Repair
On May 16, 2013, the CNE released a report commenting on
the tariff deficit and assessing key measures enforced by
MINETUR to reduce the deficit:
– Reprofiling of the underground storage remuneration
– Increase in access tariffs in 2012 and 2013
– Moratorium on new transmission & regasification investments
– No inflation pass-through in 2013 for distribution and certain
transmission assets
The CNE projects that these measures will allow for the
accumulated deficit to be gradually resolved from 2016
In the context of the tariff deficit repair, any expansion of the
distribution network leads to a reduction in deficit through
a mutualisation effect
22
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
10
17
16
3
7
Refinancing 25
Final Remarks 30
MRG – Business Operations
MRG Business Overview Geographical Coverage
Source: MRG
MRG territory
17
MRG’s sole activity is the distribution of natural gas through
pipelines to the customers of the supply companies in 57
municipalities in the region of Madrid
– MRG’s territory includes the northwest and southwest
municipalities outside the M-30 ring road. The socio-
demographic profile of the population residing in this area is
affluent relative to the region and the country
MRG network consists of c.5,350 km of pipelines:
– Steel pipelines for pressure > 16 bars
– Polyethylene pipelines for pressure < 16 bars
– More than 84% of the pipelines are polyethylene, with an
estimated technical life of > 50 years
MRG has 162 full-time employees on its payroll, and more
than three times this headcount are external contractor
resources supporting the company for low value / high
intensity activities such as meter reading, periodic inspection,
civil work and contact centers
MRG – Core Business Activities
Periodical Inspections Meter Readings
Emergencies and Home Services Network Operations and Maintenance
18
According to current legislation, every connection point must
be inspected every five years
MRG performs those periodical inspections for connection
points within its territory and generate revenues out of this
activity
Inspection tariffs are regulated by Comunidad de Madrid
MRG performs periodical meter readings in each of its
connection points
Readings output is shared with supply companies and is the
base for gas bill to end consumers
Residential and commercial customers meters are read on a
bi-monthly basis
High consumption and industrial customers are read monthly
MRG network and ancillary assets require maintenance to
ensure proper operation
Maintenance activities include leak detection, network
monitoring and conservation, etc.
MRG preventive maintenance activities are based in its long
term maintenance plan
Maintenance plan is tailored for each material type and class
of asset
Servicing emergency calls constitutes a key activity of MRG
Emergency calls must be serviced within legally established
time limits, according to severity of the emergency
MRG provide a full range of services to connection points,
such as re-connection, meters removals, meters
maintenance and calibration, etc.
Most of these services are charged to customers and
generate revenue streams for MRG
826 833 835
-
200
400
600
800
1.000
2011 2012 Jun 2013
000's
Non-Industrial Customers
90.40%
Industrial Customers
9,60%
MRG – Connection Points Mix
Customers Overview Delivered Volume Per Segment
Number of Connection Points per Segment
Non-Industrial Customers
99.99%
Industrial Customers
0.01%
Source: MRG, June 2013
Source: MRG, June 2013
Total: 9.8 MWh/year
Total: 835,414 CPs
Development of # of Connection Points (2011-2013)
19
MRG connection points are associated with the customers of
the supply companies
These connection points are divided into two categories:
– Industrial customers, i.e. with pressure > 4 bars
– Non-industrial customers, i.e. with pressure < 4 bars
The vast majority of MRG connection points relate to
household consumers, with a stable usage profile (heating
and cooking)
Development strategy targets mainly residential areas (such
as new municipalities). Industrial customers are targeted on
an opportunistic basis in coordination with supply companies
Source: for 2011 – 2012: CNE, Intorme Trimestral de Supervisión del Mercado Minorista de Gas
Natural en España (month: December); for 2013: MRG as of June 30, 2013
MRG – Business Strategy
Capex Programme
MRG capex is largely discretionary and mainly targeted to
selective extensions and development
Most capex projects are evaluated on a case by case basis,
and no investments are undertaken unless it is profitable for
the company
The regulatory parametric formula incentivizes natural gas
distribution companies to grow their network with new
connection points which are positively contributing to the
natural gas system (i.e. generating demand)
MRG 2010
New Municipalities 2011
MRG II 2011
Iberdrola 2012
New Concessions 2013
Concessions 2014
MRG Expansion 2010-2014
20
Company Strategy
As a regulated business, MRG cannot undertake activities
other than natural gas distribution
As such the Company intends to focus its strategy on
operating and expanding its current distribution network, both
within existing territory and in adjacent municipalities upon
obtaining newly granted licenses
Focus is set in growth of household and small businesses
connection points below 4 bars pressure
Source: MRG
22
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
10
17
21
3
7
Refinancing 25
Final Remarks 30
Key Financials - Consolidated Group
22
Key Metrics - € MM
Regulated revenues account for 98% of total MRG
revenues in FY2013
Overhead costs have stabilized at a sustainable level of
c.€19m, leading to EBITDA margin of 82.6%
Change in EBIT margin is largely driven by a one-off change
in the depreciation policy adopted in FY2012
2013 Cash Flow Available for Debt Service reflects the
impact of, among other items, temporary measures reducing
tax depreciation rates for goodwill and intangible assets
Capex has increased in FY2013 as a result of one-off
network sectorization works (required to separate MRG
network from that of Gas Natural Fenosa) and the acquisition
of natural gas distribution assets in Madrid from Iberdrola
Commentary
Source: MRG
YE 30 Jun 2012 2013
Remuneration 151,7 152,0
Other regulated revenue 21,0 20,5
Other revenue 4,1 4,8
Variable costs (11,0) (12,5)
Overhead costs (21,7) (18,4)
EBITDA 144,1 146,4
Margin 81,5% 82,6%
EBIT 100,3 111,0
Margin 56,7% 62,6%
Net Income 21,6 30,7
YE 30 Jun 2012 2013
EBITDA 144,1 146,4
Income tax paid 2,4 (9,2)
Working capital (16,0) 2,0
Capex (12,8) (21,1)
Cash Flow Available for Debt Service 117,7 118,1
Key Financials - Consolidated Group
23
Balance Sheet - € MM
Total Network Fixed Assets include operating licences
granted by the Authorities and the net value of PPE
Equity base consists of paid up capital contributions and
subordinated shareholder loans
Subordinated loans will be capitalised upon completion of the
current refinancing process
Current assets comprises MRG portion of tariff deficit
Average DSO of trade receivable with Supply Companies is
stable around 30 days
Goodwill and Gas distribution licences amortization are tax
deductible items for corporate income tax purposes
Commentary
Source: MRG
YE 30 Jun 2012 2013
Gas distribution licences 713,3 713,5
Net tangible fixed assets 392,3 385,5
Total Network Fixed Assets 1.105,6 1.099,0
Goodwill 57,4 57,4
Deferred Tax Asset 28,7 30,8
Other Non-Current Assets 6,7 4,1
Current Assets 34,6 40,0
Cash and cash equivalents 55,0 33,4
Total Assets 1.288,0 1.264,6
Equity 244,5 230,5
Subordinated Shareholders Loan 191,7 194,0
Total Shareholders Equity 436,2 424,5
Long Term Debt 775,5 726,3
Deferred Tax 19,8 23,5
Other Non-Current liabilities 0,9 1,3
Current Liabilities 55,6 89,0
Total Liabilities & Shareholders’ Equity 1.288,0 1.264,6
22
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
10
17
24
3
7
Refinancing 25
Final Remarks 30
Refinancing Structure
Ownership
Flows / Guarantees
Intercompany loans
25
Simplified MRG Structure After Bond Issuance
MSIP Violin BV
Bonds issuance
from EMTN
Programme
MRG
MRG II
MRdG Finance BV
Merger to take place
upon refinancing
or right thereafter
100%
Guarantees
from Opcos Bondholders
100%
100%
61.8%
MSIP International
Holdings
Coöperatief U.A
Other investors
38.2%
Bank debt and other facilities would be pari
passu with intercompany loans from MRdG
Finance BV. Total debt will be provided by
BBVA, Banca March, BNP Paribas, Credit
Agricole CIB, CaixaBank & Santander
The company has established an EMTN program as a
stable debt platform and in order to provide ongoing access
to the debt capital markets
MRG is planning a full refinancing of the current bank debt
facilities through a two step capital markets issuance(1)
− €500MM inaugural bond off a new established EMTN
programme
− €275MM 3 year term loan facility, expected to be
refinanced through a second issuance
The upstream merger of MRG II into MRG will be executed
shortly after the inaugural bond issuance
The merger will simplify the corporate structure and
facilitates the management of the group
Strong track record of the company and shareholders of
implementing similar corporate restructurings in the past
Commentary
(1) Indicative refinancing structure
Financial Policies
Hedging
The Company policy is to hedge a minimum of 75% of its floating rate liabilities with interest rate swaps
The Company has interest rate swaps outstanding to hedge against interest rate risk for the current bank facilities
Part or all of these interest rate liabilities will be broken with the inaugural fixed rate bond issuance
To the extent the entire balance of the current bank facilities is not refinanced with the inaugural bond issuance, a portion of the existing
interest rate swaps would be retained to de-risk the new bank facility
Liquidity Management
Liquidity is managed through banking facilities raised in the ordinary course of business and cash on the balance sheet
The Company currently projects to maintain a cash balance between €10MM to €20MM in the business
As part of the current refinancing plans, MRG has secured a committed €50MM 5 years revolving credit facility from its bank group
26
Bonds Indicative Key Terms and Conditions
Madrileña Red de Gas Finance B.V. Issuer / Borrower
Madrileña Red de Gas, S.A.U. & Madrileña Red de Gas II, S.A.U. Guarantors
BBB (Fitch) / BBB- (S&P), both with Stable Outlook Expected Rating
Benchmark size Volume
27
Expected 5-yr Maturity
Change of Control, Loss of Licence, Restructuring Event Put Options
125bps coupon step up in case of downgrade to sub investment grade Rating Downgrade
Banca March / BBVA / BNP Paribas / CaixaBank / CA-CIB / Mitsubishi UFJ Securities /
Morgan Stanley / Santander Bookrunners
Senior Unsecured , Fixed Rate Notes Structure
Refinancing of existing bank debt facilities Use of Proceeds
English Law Governing Law
Luxembourg Stock Exchange Listing
Negative Pledge, Cross Default Other Key Covenants
Key Rating Highlights
Fitch’s (expected) BBB, Stable Outlook
"MRG's ratings are underpinned by its regulated gas distribution activities in Madrid providing predictable and stable earnings.
Around 98% of its revenues were regulated in 2012…“
“… our view [is] that the government intends to support further gas penetration.”
Standard & Poor’s (expected) BBB-, Stable Outlook
28
“MRG's ‘strong’ business risk profile is underpinned by the group's low-risk monopolistic and regulated network operations that
generate predictable earnings and cash flows.'
"We view the Spanish regulatory framework for gas distribution companies as generally supportive."
“… the group's sizable and predictable operating cash flows, combined with low investment requirements that should result in
significant and recurrent positive discretionary cash flows over the medium term.“
Source: Fitch Rating press release, July 31 2013; Standard and Poor’s Research Update, July 31, 2013
22
Table of Contents
Executive Summary
Spanish Market Overview
Regulation Overview
Company Overview
Financial Information
10
17
29
3
7
Refinancing 25
Final Remarks 30
Key Investment Considerations
Monopolistic distribution network with perpetual licenses covering a large geographical area in
Madrid
Third largest gas distribution network in Spain with 11% market share
Stable and steadily increasing customer base made, in its vast majority, of households and small
businesses
Good network condition with limited losses/disruptions
Essential
Infrastructure
Regulatory framework based on predictable parametric formula established since 2002 and stable
since then
Regulatory framework provides incentives to distribution companies to create new connection
points generating demand and toll revenues for the Gas System
Proven Regulatory
Framework
Stable and predictable earnings with 98% of revenues generated from regulated activities
Starting remuneration set specifically by the Ministry of Industry for MRG in 2010 and 2011
Predictable additional sources of revenues with regulated tariffs
Stable and
Predictable
Financial
Performance
Low requirement for capex, which is predominantly discretionary in nature
Historically consistent and continuous level of network maintenance
Robust operational track record
Limited and
Discretionary
Capex Spending
30
Disclaimer
31
This presentation is strictly confidential to the recipient and has been prepared by Issuer and the Guarantors (as defined below) solely for use at the presentation given
on the date stated. By attending such presentation, you agree to be bound by the following terms.
The contents of this presentation are neither an offer to buy or sell securities, nor a solicitation to buy or sell securities. The summary contained in this document is not a
complete description of the Programme (as defined below) or the business of the MRG group and is subject to change without limitation or notice. This investor
presentation and any other information supplied in connection with the EUR 2,000,000,000 Euro medium term note programme for the issuance of notes by Madrileña
Red de Gas Finance B.V. (the "Issuer") guaranteed by the Guarantors (as defined below) (the “Programme”) or any securities issued pursuant to the Programme are
not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer, Madrileña Red de Gas, S.A.U.
(“MRG”) or Madrileña Red de Gas II, S.A.U (together with MRG, the "Guarantors"), or any other person that any recipient of this investor presentation should purchase
any securities issued under the Programme. Each investor contemplating the purchase of any of the securities issued under the Programme should make its own
independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer and the Guarantors. Potential investors are
advised to consider the selling restrictions that will be set out in the final prospectus relating to the Programme. This presentation does not purport to identify or suggest
all of the risks (direct and indirect), which may be associated with an investment in any securities issued under the Programme. All information contained in this
presentation is qualified in its entirety by the information to be provided in the prospectus. Any investment decision should be based only upon such prospectus. This
presentation does not constitute a prospectus or other offering document in whole or in part.
If and when included in this presentation, the words “expects”, “projects”, “plans”, “believes”, “intends”, “anticipates”, “estimates”, “stabilised”, “underwritten”, “vision”,
“may”, “could”, “pro forma”, “budget”, “financial model” and analogous expressions are intended to identify forward-looking statements. Any such statements are
inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected and the actual outcome to differ
materially from that expected. Such risks and uncertainties include, amongst others, general economic and business conditions, competition, changes in political, social
and economic conditions, regulatory initiatives and compliance with governmental regulations, and various other events, conditions and circumstances (including acts of
god, war and terrorism). The Issuer and the Guarantors expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-
looking statement contained herein to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based.
The information contained herein is not for publication or distribution in the United States. These materials do not constitute an offer of securities for sale in the United
States or an invitation or an offer to the public or form of application to subscribe for securities. The Issuer's securities have not been, and will not be, registered under
the U.S. Securities Act of 1933, as amended (the "Securities Act") or the securities laws of any state of the United States or other relevant jurisdiction and may not be
offered or sold in the United States absent registration under the Securities Act or an available exemption from it. Securities issued under the Programme will be offered
and sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. Each person viewing this document will be deemed to have
represented that it is a person into whose possession this presentation may be lawfully delivered in accordance with the laws of the jurisdiction in which it is located.
The Issuer and the Guarantors expressly disclaim any obligation or undertaking to publicly release any updates or revisions to update this presentation whether as a
result of any change to the matters described herein or any change in any fact or circumstance subsisting at the date hereof or otherwise. The information contained in
this presentation has not been independently verified. Accordingly no representation or warranty or undertaking, express or implied, is given by or on behalf of the
Issuer or the Guarantors as to, and no reliance should be placed on, the accuracy and completeness of any source and any information may be incomplete or
condensed.
This Presentation may not be passed on in the United Kingdom except to investment professionals or other persons in circumstances in which section 21(1) of the
Financial Services and Markets Act 2000 does not apply to the Issuer.
Alejandro Lafarga
Chief Executive Officer
Tel: +34 91 589 6534
Email: [email protected]
Contact Details
32
Javier Contreras
Chief Financial Officer
Tel: +34 91 324 4732
Email: [email protected]
