Galp Gas Natural Distribuicao, S.A.

The stable outlook on GGND reflects our expectation that the regulatory environment will continue to support stable cash flow, GGND's operating environment will remain relatively low risk, and management will continue to manage costs and meet regulatory expectations. We consider that adequate investment opportunities remain within the gas distribution sector in Portugal. The stable outlook is supported by GGND's flexible dividend policy with commitment to the current rating level, our expectation of a rise in capex and a return to RAB growth based on increase in connection points, and expectations of a new strategic development plan from shareholder Allianz Capital Partner. We therefore anticipate stable credit metrics, with adjusted FFO to debt of 9%-10% over the next 24 months. The

...Galp Gas Natural Distribuicao (GGND) benefits from steady cash flows from fully regulated activities under a supportive regulatory framework. GGND's portfolio is composed of long-term contracts that regulate the construction, maintenance, and operation of regulated utility infrastructure. S&P Global Ratings considers the regulator's track record of stability solid, and note that GGND's activities are further supported by the EU's supervisory framework. Additionally, the current regulatory period for Gas distribution in Portugal, which started in January 2020, has been extended to four years and provides better visibility on gas operators' financial performance than the former three-year periods. We expect the rate of return to stay close to 4.7% from 4.77% in 2020, with annual indexation to Portuguese government yield. GGND keeps demonstrating solid operating performance, tempering limited diversification and growth opportunities under the current 2021-2025 business plan. The company operates...

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