TEXT-S&P release on Gas Natural SDG S.A

(The following statement was released by the ratings agency)

Aug 1 - Standard & Poor's Ratings Services said today that it placed its 'A/A-1' long- and short-term corporate credit ratings on Spain-based utility Gas Natural SDG, S.A. (GAS.MC: Quote, Profile, Research) on CreditWatch with negative implications.

The CreditWatch placement reflects the negative credit impact of Gas Natural's EUR7.6 billion purchase agreement to buy a 45.3% stake in Spanish utility Union Fenosa S.A. (UNF.MC: Quote, Profile, Research), owned by Spain-based construction company Actividades de Construccion y Servicios, S.A. (ACS.MC: Quote, Profile, Research) (ACS), and the following mandatory buyout of minorities for a further up to EUR9.2 billion. The full takeover will be paid in cash and could reach EUR16.8 billion.

The acquisition is subject to approval by the National Energy Commission and the competition authorities. If successful, it would result in a material weakening of Gas Natural's financial profile due to the size of the bid and the consolidation of Union Fenosa's approximate EUR6.9 billion of adjusted debt (at end-2007). Gas Natural could partially mitigate the negative impact of this through a EUR3.5 billion equity issue which will be guaranteed by its core shareholders Caja de Ahorros y Pensiones de Barcelona (la Caixa; AA-/Stable/A-1+) and Repsol-YPF S.A. (REP.MC: Quote, Profile, Research) (BBB/Stable/A-2)--and through asset disposals which the company believes could generate more than EUR3 billion.

Under the agreement with ACS, Gas Natural will make an initial acquisition of a 9.9% stake in Union Fenosa now, and will acquire the remaining 35.4% once it receives all the required authorizations, a process likely to last until the first quarter of 2009. Gas Natural will then make a tender offer for the remaining capital.

"The rating outcome will depend on the final acquisition disbursement, the funding mix, and the combined group's new business and financial strategy, as well as risk tolerance and investment plans," said Standard & Poor's credit analyst Monica Mariani.

We will analyze the new business profile, financial forecasts, and planned financial structure in order to resolve the CreditWatch listing upon completion of the transaction (including the rights issue), which is likely by April 2009, subject to the granting of various regulatory authorizations.

Based on the information currently available, and assuming a 100% acquisition financed with EUR10.2 billion of debt and with EUR6.5 billion of equity/disposals, we could lower the long-term rating to the 'BBB' category upon completion of the transaction.

"We expect to lower the ratings to 'A-/A-2' and to keep them on CreditWatch negative once Gas Natural completes the acquisition of ACS' 45.3% stake in Union Fenosa," said Ms. Mariani.