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Financial Policy and Rating

The financial structure of the Hera Group changed significantly during 2006. Accordingly, various transactions were carried out in order to guarantee an increasingly sound financial structure and a cost of money at more convenient levels. The targets which the Company set itself at the start of the year were as follows:

  • Definition and application of a strategy for hedging the interest rate risk which is accurate and consistent with consequent total coverage of the long-term debt at a fixed rate and fully compatible with the IAS/IFSR.
  • Consolidation of the short-term debt in favour of the long-term portion.
  • Attainment of abundant uncommitted and committed credit facilities, so as to ensure sufficient liquidity for covering each financial commitment at least over the next two years.
  • Further reduction of the cost of money.

 

The above having been stated, the situation was as follows at the end of 2006:

  • All the interest rate hedging contracts outstanding not consistent with the new financial policy were terminated, whilst at the same time an equal number of mirroring and new swap hedging contracts - plain vanilla - perfectly compliant with the underlying debt (therefore in accordance with the IAS standards) were entered into with an important international bank.
  • Various transactions were finalized which, in their entirety, made it possible to take the portion of long-term debt to around 80% of total borrowing. These include a direct unsecured loan, stipulated on 27 December 2006 with the EIB, European Investment Bank, for a total of Euro 180 million, 8-year bullet, regulated at the Euribor rate plus a spread of 2 hundredths.
  • The entire portion of long-term debt is currently regulated at a fixed rate.
  • The liquidity as at 31 December 2006 on the Group's books amounted to over Euro 213.6 million; three committed 3-year stand-by contracts were also entered into for a total of Euro 250 million, unutilized as of 31 December 2006.
  • Total use of the bank credit facilities granted to the Group amounted to approximately 37% of the total. In greater detail, short-term credit lines were 14.8% used, while 71% of the long-term lines were used.
  • The Hera Group's total cost of debt stands at present at around 4.2%.

 

During 2006, operating management of commodity and/or currency risk, was implemented in a "hedging" capacity, aimed at establishing the margins provided by the budget of the commercial transactions effected in both the Gas and Energy Divisions.

From the organisational point of view, during the year, hedging activities of the Gas Division and those of the Energy Division were centralised into a single department (Risk Management in the Gas Divison.

This approach, based on the creation of a Concentrated Risk Portfolio, enables the unitary management of homogeneous risks and, based on macrohedging instead of using specific hedging formulas, offers various advantages, such as:

  • Achievement of greater levels of hedging with a consequent reduction in volatility of economic results;
  • Increased flexibility due to detaching the index-linking formulas for selling from those for buying;
  • Elimination of constraints on the minimum volumes which can be hedged;
  • Optimisation of costs for lesser recourse to the market, by netting the positions of single contracts and the positions generated by the Gas and Energy Divisions;
  • Increased flexibility in structuring the products and services, with the possibility of proposing/quoting index-linking formulas different to those present in the acquisition portfolios;
  • Increased visibility of the OTC commodities prices.

 

The credit facilities and the related financial activities are not concentrated on any specific financial backer but are distributed equally among leading Italian and international banks.

Readers are reminded that Hera S.p.A. has a Bond outstanding for Euro 500 million, featuring a fixed rate coupon of 4.125%, maturing in February 2016.

Thanks to the cash flow produced and the sound equity and financial structure, overall it is believed that the Group is thus able to meet the important investment plan envisaged by the Industrial Plan.

Hera S.p.A. has received an "A1 stable" long-term rating from Moody's and an "A stable" rating from Standard & Poor's and it is the Group's intention to endeavour so as to maintain these highly outstanding rating levels in the future.