Naturgy Energy Group S.A.

The stable outlook reflects our view that the Gemini transaction is now unlikely to be executed, resulting in our expectation that Naturgy will operate under a consolidated perimeter while prioritizing a financial policy that supports FFO-to-debt of at least 18%, at least until 2025, but likely beyond. In addition, it reflects that Naturgy's strong performance over 2023 and 2024 at its regulated, and particularly international LNG and wholesale gas businesses, provide sufficient financial headroom to bridge the gap until we gain clarity on the company's strategic direction, which we expect over the next two years. Furthermore, Naturgy's greater headroom provides resources for the company to increase investments, which we expect will focus on increasing renewable generation capacity, thereby reducing the

...We believe project Gemini is unlikely to be executed soon, with Naturgy continuing to operate under a consolidated perimeter over our base-case period. In our view, the lack of clarity over the Gemini transaction's timing prolonged uncertainty regarding Naturgy's perimeter of operations, capital structure, and strategic goals--for both the group and the potential entities NetworksCo and MarketsCo--making faster strategy implementation more complex. However, we believe the likelihood the transaction is implemented has significantly reduced, since it lacks the required support of the current Spanish government and the immediate support of any administration emerging from the July 23, 2023 general elections will be difficult to achieve. In addition, Naturgy's power and gas distribution system operator subsidiaries in Spain, which together would account for about two-thirds of NetworksCo's EBITDA, face a regulatory reset in 2025 and 2026, respectively. This makes the spinoff and the restructuring...

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