The ratings on Gas Natural reflect Standard&Poor's Ratings Services' view of the group's strong position as Spain's incumbent gas utility, and its high share of profits from low-risk regulated gas and electricity distribution activities. The ratings also reflect the increased diversification of Gas Natural's business activities and the broadening of its generation asset portfolio into nuclear, hydro, and coal assets following last year's acquisition of Spain's No. 3 electricity company, Union Fenosa. This diversification reduces Gas Natural's exposure to volatility associated with electricity pool prices. However, these strengths are offset by the high level of debt that Gas Natural incurred to acquire 95.22% of Union Fenosa; demand weakness in the Iberian power markets; and increasing competition in the
