Significant events

Corporate

Incorporation of new Group companies

As part of the Terna Group reorganisation process, on 23 February 2012, the Parent Company Terna S.p.A. incorporated the company named Terna Rete Italia S.p.A. with share capital of €120,000; the new company's corporate purpose is to design, create, manage, develop, operate and maintain grid lines and structures and other infrastructures connected with such grids, plant and equipment functional to the said activities in the segments of electricity transmission and dispatching or in analogous, related or connected segments. On the same date, the Parent Company Terna S.p.A. leased to Terna Rete Italia S.p.A. a business unit comprising human resources, goods and relationships related to operation activities, ordinary and extraordinary maintenance and development of the NTG. The contract, four years in length and renewable for a further four years, is effective from 1 April 2012 and has a yearly instalment of 23.7 million.

On 9 May 2012 the Parent Company Terna S.p.A. paid in €3 million, accounted as a capital contribution, in order to give the subsidiary company Terna Rete Italia S.p.A. the resources necessary to carry on its business.

During the 2012 period, therefore, Terna Rete Italia S.p.A. signed a series of contracts with the Parent Company Terna S.p.A. and the affiliated companies Terna Rete Italia S.r.l., Terna Plus S.r.l., Terna Storage S.r.l. and Terna Crna Gora d.o.o., for the regulation of the technical and administrative services.

In addition, on 23 March 2012 the subsidiary Terna Plus S.r.l. incorporated a sole shareholder limited liability company named Terna Storage S.r.l. with share capital of €10,000; the new company's corporate purpose is to design, create, manage, develop and maintain diffused electricity accumulation systems (including batteries) and pumping and/or storage systems. On 13 November 2012 the company Terna Plus S.r.l. paid in €20,000 million, as a capital payment in order to give the company Terna Storage S.r.l. the resources necessary to carry on its business. Following the inclusion of the storage systems under the scope of regulated activities (AEEG Resolutions 228/2012, 43/2013 and 66/2013), on 14 November 2012, the subsidiary company Terna Plus S.r.l. transferred the stake representing the entire company capital of Terna Storage S.r.l. to the Parent Company Terna S.p.A., against payment of the price of €30,000.

On 31 December 2012 the subsidiary company Terna Storage S.r.l. purchased from associated company Terna Plus S.r.l. for a net amount of €1.1 million, a parcel of projects for the construction of diffused electricity storage systems (batteries), to be constructed in the areas of Benevento and Foggia. These are infrastructures which, connected to renewable source production plants, contribute to obviating the discontinuity issues typical of these sources of energy.

Terna Cnra Gora share capital increase

On 10 February 2012 and on 22 November 2012 the Parent Company Terna S.p.A. subscribed two separate share capital increases of the subsidiary Terna Cnra Gora for €5 million and €29 million respectively in order to provide the company with the resources necessary to develop the business.

Terna purchases additional shares in the associate CESI S.p.A.

On 31 May 2012 Terna S.p.A. finalised the purchase of a further equity interest in CESI S.p.A., corresponding to 0.292% of the share capital from Enel S.p.A. Following these transactions, the total equity interest of Terna in the associate stood at 42.698% of the share capital.

Transfer of business unit to Terna Plus

In the context of the reorganisation process of the Terna Group, with deed dated 19 July 2012 (as modified on 31 October 2012), the shareholders' meeting of the subsidiary Terna Plus S.r.l. approved a capital increase of €16 million with a premium of €2.3 million. The capital increase was fully subscribed and paid-up by the Parent Group Terna S.p.A. through the transfer, effective 1 August 2012, of a business unit which constructs temporary connections using rapid installation electricity stations (SCRI) and carries out other services. This transfer - subject to an assessment pursuant to Art. 2465 of the Italian Civil Code by an independent expert - has increased the investment held by Terna S.p.A. in the subsidiary for an amount of €18.3 million.

In order to allow the company Terna Plus S.r.l. to pursue its mission, with effect from 1 May and 1 November 2012, the Parent Company Terna transferred to the associated company Terna Rete Italia S.p.A., via transferring the individual contracts, 12 employees with the related equity items.

National Transmission and Regulatory Grid

New 2012-2015 tariff system

On 2 January 2012 the Authority for Electrical Energy and Gas (AEEG) published Resolutions Nos. 199/11, 204/11 and 197/11 thereby establishing, for the new 2012-2015 regulation period, the remuneration for the supply of electricity transmission, distribution, measurement and dispatching services and regulation of the transmission service quality. The new features introduced by AEEG Resolution 199/11 include taking the weighted average cost of capital (WACC) from the previous 6.9% to 7.4% and establishing a review by November 2013, to apply from the second two-year period of the regulatory period (2014-2015), limited to the “risk-free rate” parameter. There will also be a new incentive category (category I4) for extra remuneration of accumulation systems amounting to 2% for a period of 12 years subsequent to the commissioning of the investments. Starting from 2012, the AEEG has recognised a further 1% on the WACC, aimed at compensating for the effect of the "regulatory lag", i.e. the delay with which the tariff remunerates investments made. Resolution No. 204/11 updates for 2012 the price for the electricity dispatching service – which also includes other components, among them an advance on the bonus for the reduction of DSM volumes and the operating costs payable in relation to TIMM, GAUDÌ and CASC – setting it at 0.0526 €/kWh. Resolution No. 197/11 on service quality regulation substantially confirmed the framework of the previous regulatory period and provided for a mechanism of bonuses/penalties which takes into consideration only the Energy Not Delivered indicator. The maximum potential impact for the Terna Group deriving from this incentive mechanism lies within a range of € -12/+30 million per year.

Approval of the 2011 National Electricity Transmission Grid Development Plan

On 2 October 2012, the Ministry for Economic Development approved, pursuant to legislative decree 152 of 3 April 2006 as amended, the 2011 Development Plan for the electricity transmission grid submitted by Terna S.p.A..

Finance

5-year bond issue for €1.25 billion

On 13 February 2012 Terna launched a bond issue on the market in euros, at a fixed rate, with expiry in 5 years, for a total of €1.25 billion under the scope of its Euro Medium Term Notes (EMTN) programme. This has been assigned an A- Credit Watch Negative rating by Standard and Poor's, A3 outlook negative by Moody's and A by Fitch.

The bond matures on 17 February 2017, has an annual coupon of 4.125% and issue price of 99.809%. The share has thus been priced with a spread of 257 basis points as compared with the mid swap. The bonds are listed on the Luxembourg Stock Exchange.

The transaction, intended for institutional investors, has been placed by a syndicate of banks comprising BNP Paribas, Credit Suisse, Deutsche Bank, J.P. Morgan, Mediobanca, MPS Capital Services, Natixis and Unicredit Bank AG as joint lead managers and joint bookrunners. The bond is intended to finance the grid development investments envisaged in the Company's business plan. 

Renewal of EMTN Programme and increase of the amount to €5 billion

On 15 June 2012 Terna renewed its bond issue programme entitled “Euro Medium Term Note Programme” (EMTN) increasing its amount from €4 to €5 billion as resolved by the Board of Directors on 15 May 2012. Deutsche Bank and Citigroup were the Joint Arrangers for the Programme, which obtained ratings of A- from Standard & Poors, A3 from Moody's and A from Fitch.

Five-year "long" bond issue for €750 million, expiry on 16 February 2018

On 9 October 2012 Terna S.p.A. launched a bond issue on the market in euro, at a fixed rate, with duration in excess of 5 years, for a total of €750 million under the scope of its Euro Medium Term Notes (EMTN) programme. This has been assigned an A- Outlook Negative rating by Standard and Poor's, Baa1 outlook negative by Moody's and A outlook negative by Fitch.

The bond matures on 16 February 2018 and has a coupon of 2.875% and issue price of 99.736%. The share has been priced with a spread of 193 basis points as compared with the mid swap. The bonds, which pay an annual coupon, are listed on the Luxembourg Stock Exchange.

The transaction was intended for Institutional Investors and placed by a syndicate of banks made up of Credit Suisse, Deutsche Bank, Mediobanca, Morgan Stanley, Société Générale and Unicredit in their capacity as joint lead managers and joint bookrunners. The bond is intended to finance the grid development investments envisaged in the Company's business plan. 

Terna rating

On 30 January 2012 Fitch Ratings revised the rating for the senior unsecured debt of Terna S.p.A. from level A+ to A following the downgrading of the Italian Republic from A+ to A- with negative outlook. At the same time, Fitch confirmed both the long-term rating of the issuer (Long Term Issuer Default Rating - IDR) as A with negative outlook and the short-term (Short Term Issuer Default Rating) rating at F1. On 22 March 2012 Fitch Ratings confirmed both the issuer's long-term rating (IDR), and the rating of the company's senior unsecured debt at “A”. The outlook relating to the IDR remains negative. At the same time, the Agency also confirmed the issuer's short-term rating at “F1”. Confirmation of the rating reflects the greater visibility of the financial profile of the company following presentation by Terna S.p.A. of the new Business Plan.

On 8 March 2012 S&P confirmed the long and short-term rating of Terna S.p.A. at A- and A-2, respectively, and the senior unsecured debt rating at A-. In line with the Agency's method for government related entities, these levels had been assigned to the Company on 20 January 2012, following the downgrading of the Italian Republic from A to BBB+. At the same time, the Agency removed from the "CreditWatch" status with negative implications, the Company's long-term rating and the rating of the senior unsecured debt, a status assigned by the agency in December 2011. The outlook is negative. 

On 20 March 2012 Moody’s confirmed its judgement on Terna S.p.A.'s creditworthiness at A3, following presentation by the Company of the new Investment Plan. Nonetheless Terna's rating remains subject to a negative outlook in the light of the Company's exposure to pressures regarding the Italian Republic's sovereign debt. On 16 July 2012, Moody's downgraded the rating of the issuer and the senior non-subordinate debt of Terna S.p.A. from A3 to Baa1. The outlook for both ratings is negative. At the same time, the short-term rating for Terna remained unchanged at Prime-2. This rating change followed the downgrading of Italian Government Bonds from A3 to Baa2, which took place on 13 July 2012, with negative outlook. Following the downgrade, Terna's rating is one notch higher compared to the rating of the Sovereign State.

Sustainability

Terna at the top of the world sustainability classification for the "electricity" segment

For the third year running, the Company has been included in both the "World" and "Europe" baskets of the Dow Jones Sustainability Index, recording the world's highest score together with Iberdrola.

Once again, Terna improved its performance in both economic terms (governance, risk management and supply chain management, code of ethics and anti-corruption) and social ones, with a total score of 87 (8 points more than the 2010 result and 1 more than 2011): confirmation of continuity at the top of the world for the sector business in the final honours list that recognises the commitment made by the company to sustainable operations. This year, the selection identified 340 businesses out of 2,500 on the World index and 166 out of 600 on the Europe index. As in 2011, only 13 Italian companies were admitted to this true elite of world sustainability.

In addition to being on the DJSI, Terna is also on the international indexes FTSE4Good (Global and Europe), Axia (Ethical and CSR), ECPI (Ethical Global, Euro, EMU), MSCI (Global and Europe Sustainability), ASPI Eurozone, Ethibel (Excellence, Sustainability Europe) and on the Italian indexes FTSE, ECPI Italia SRI Benchmark and Italia SRI Leaders, prepared starting from only the companies listed on the Italian Stock Exchange.