Continental Focus, International Reach

Naturgy and Sonatrach to Acquire Cepsa Stake in Medgaz Pipeline

Tuesday, October 22, 2019

Naturgy and Algerian state-owned oil concern Sonatrach have signed a deal for the acquisition of Cepsa’s share in Medgaz, which after the deal’s completion, will see operations become co-controlled by both.

In a statement, Sonatrach said its share in Medgaz will increase from 43% to 51%. Thus, after the validation of the transaction by the European authorities in charge of competition, Sonatrach will become the majority shareholder of Medgaz with 51%.

Medgaz is a direct pipeline linking Benisaf in Algeria to Almeria in Spain. Medgaz was commissioned in February 2011 with a capacity of 8 billion cubic meters per year. Through this agreement, Sonatrach will strengthen its role of reliable supplier on the Iberian Gas Market.

Naturgy said in its own statement that the deal transforms its 14.95% financial participation in Medgaz to a strategic participation that will allow joint control of the company together with Sonatrach. Naturgy will acquire 34.05% of Medgaz for 445 million euros through a special purpose vehicle (SPV) that can give entry to a financial partner.

The transaction values ​​100% of Medgaz’s capital at 1,300 million euros with an “Enterprise Value” of approximately 1,900 million euros, equivalent to 6.9x the expected EBITDA in 2021, which includes the approved 2bcm / y expansion program of the Current gas pipeline, which will increase capacity by 25% to 10 bcm in volume and will be operational in 2021 with an investment of only c. € 67M. Medgaz is expected to distribute dividends above 130 million euros annually as of 2021.

“As a whole, it is a very attractive operation for Naturgy, both because it is a strategic infrastructure asset, where we increase our control position significantly, as well as the financial terms reached in the agreement, which represent an attractive price for stable dividends and Long-term predictables that meet our criteria for generating shareholder value,” said Francisco Reynés , president of Naturgy.