FITCH PUBLISHES ENGIE S.A.'S 'A' RATING; OUTLOOK STABLE

FITCH PUBLISHES ENGIE S.A.'S 'A' RATING; OUTLOOK STABLE Fitch Ratings-London-09 October 2017: Fitch Ratings has published French gas and electric utility Engie S.A.'s Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'A'. Fitch has also assigned Engie a senior unsecured rating of 'A', a Short-Term IDR and CP programme rating of 'F1', and a 'BBB+' rating for its subordinated notes. Fitch has also assigned Electrabel S.A. and Engie Invest International S.A. Long-Term IDR of 'A' as well as a senior unsecured rating of 'A' for Engie Alliance GIE. The Outlooks on the Long-Term IDRs are Stable. The ratings reflect Engie's scale and diversification, which have helped to limit the impact of commodity price weakness. Fitch's rating is based on Engie's consolidated profile, reflecting its conservative financial policy including target net debt/ebitda of up to 2.5x. We equalise the ratings of the subsidiaries listed above with those of the parent, reflecting their significant contribution to the group in the case of Electrabel and guarantees in place in the case of Engie Invest International and Engie Alliance GIE. KEY RATING DRIVERS Scale and Diversification: Engie is the world's leading independent power producer, with generation capacity of 101GW, of which more than 85% is low carbon dioxide emitting; the European leader in gas transmission and distribution, with a regulatory asset base (RAB) of EUR23.7 billion and a 74% share of the residential gas market in France; the leader in Atlantic liquefied natural gas (LNG); and a world-leading supplier of energy efficiency services. Diversification by geography and by business limits the impact of commodity price weakness. With 37% of EBITDA from France, Engie is more widely geographically diversified than Electricite de France (EdF; A-/Stable) or Enel S.p.A. (BBB+/Stable). Regulated and Contracted EBITDA: Engie has increased regulated and contracted EBITDA from 75% of total EBITDA in 2015 to 85% proforma in 1H17. Regulated activities account for 34% of total EBITDA, with new transmission regulation in France from April 2017 enhancing regulatory visibility. The increase in regulated and contracted EBITDA reflects asset rotation, including the current sale process of E&P and an ongoing review of the generation business. Most generation in Latin America, Africa and Asia is contracted with power purchase agreements (PPAs) of 15-20 years on average. The increase also reflects gas supply contract renegotiation, with Engie's intention to reach in the medium term full LNG supply and sales hub/market indexation from around 80% currently, eliminating the link to oil prices. Commodity Price Volatility: The weakness in commodity prices has had a major impact on EBITDA and has led to substantial asset impairments and restructuring costs, although these were substantially lower in 2016 than previously. Fitch's view is that the gas market is likely to remain well supplied, but we expect commodity prices to have a reduced impact on cash flow in future in view of the shift to regulated and contracted EBITDA. Price risk in merchant generation is mitigated by the hedging of nearly 85% of nuclear and European hydro output or around 60TWh until 2018. Capex is limited by the relatively young age of Engie's fleet and its low carbon footprint (393g/KWh).

Challenge in Customer Solutions: Engie intends to grow customer solutions EBITDA by at least 50% by 2018. This is a wide-ranging business, including gas and electricity supply, and the full range of energy service activities covering mainly engineering, installation, maintenance, building renovation, facility management, business process outsourcing, district heating and cooling networks and building renovation. Planned growth capex over 2017-2018 is EUR4 billion, or 40% of the group total. The strategy includes acquisitions and is subject to execution risk. B2C Limited Growth Potential: As profitability in French business-to-consumer (B2C) gas is modest and supply remains highly competitive, we expect supply to drive limited EBITDA growth. Profitability outside France is modest, and we view this as a business with below-average debt capacity. Asset Sales Lead Deleveraging: With EUR10.9 billion of disposals closed or signed at end-1h17, asset sales lead the deleveraging process. Engie has announced negotiations to sell the E&P business. The rating case is based on the deconsolidation of E&P in 2017 and the closing of the sale in 2018. The sale reduces gas sourcing to 5% of internal needs. More importantly, it lowers execution risk and commodity price risk. The Lean 2018 cost reduction programme also reduces earnings volatility. Engie achieved EUR530 million of net cost savings in 2016, mainly in opex in Europe, and has raised the 2018 cost savings target from EUR1 billion to EUR1.2 billion. Cost reduction is the leading driver of EBITDA growth in 2016-2017. Progression in Credit Metrics: Engie has a conservative financial policy based on a net debt/ EBITDA target of up to 2.5x, which we believe is achievable and consistent with the rating. Fitch rates Engie on a consolidated financial profile basis (ie including not fully owned subsidiaries' debt, some of which is non-recourse to Engie), while Fitch's definition of funds from operations (FFO) is lowered by dividends paid to minority shareholders of subsidiaries. Deleveraging is heavily dependent on asset disposals. The process is supported by estimates of lower cash tax and lower dividends. DERIVATION SUMMARY The EUR15 billion disposal programme and EUR1.2bn Lean cost reduction programme are well advanced, giving support and visibility to the company's deleveraging. The one notch differential compared to local peer EdF reflects stronger credit metrics, a smaller nuclear fixed-cost base with lower exposure to price risk, lower capex needs and technology risk. This is partly offset by stronger cash retention measures in terms of scrip dividends and fresh equity at EdF. Regulated and contracted EBITDA is around 85% of total for Engie; this is slightly higher compared with peers such as E.On, Iberdrola, Enel & Gas Natural (all rated 'BBB+'), while prospective average FFO adjusted net leverage of 3.2x is stronger than peers' leverage of 4.0x-4.5x. Unlike E.On, EdF and Engie do not receive any uplift to the senior unsecured rating, reflecting above-average recovery prospect assumptions in the case of E.On, given that the earnings contribution from their respective regulated networks is below 50%. A similar uplift is constrained by the sovereign rating in case of Iberdrola and Enel. Fitch aligns ratings of the subsidiaries of Engie SA based on the guarantees of debt issued by Engie Invest International and Engie Alliance GIE. Electrabel is rated at the same level as the parent reflecting its 50% contribution to the group EBITDA despite the absence of guarantees, a less predictable business mix, potential regulatory hurdles from nuclear affecting credit linkage and plans to review Electrabel's ownership structure. KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include: - E&P EBITDA are excluded from total EBITDA in 2017 following the reclassification of this business to discontinued operations. - Engie has closed or signed EUR10.9 billion of asset sales. Fitch expects another EUR4.1 billion by 2018. The biggest asset is E&P, the sale process for which is under way. We assume that the disposals lower EBITDA by around EUR2.5 billion annually from 2018. - From headline 2016-2018 capex projections of EUR23 billion, Fitch excludes EUR2 billion of acquisitions (including any impact on EBITDA) and EUR2 billion of capex in E&P. - We assume cost reduction under the Lean Programme in line with the revised target of EUR1.2 billion by 2018. - As per company guidance, cash dividends are lowered from 2018 from EUR1 to EUR0.70 per share, with no scrip alternative. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action -Reduction of FFO adjusted net leverage to below 2.7x on a sustained basis -FFO fixed charge cover above 5.5x on a sustained basis Future Developments That May, Individually or Collectively, Lead to Negative Rating Action -FFO adjusted net leverage of 3.7x or above on a sustained basis -FFO fixed-charge cover below 4x on a sustained basis -Major debt-funded acquisition -A substantial increase in exposure to customer solutions, which we view as having lower debt capacity than core regulated and contracted businesses, could result in tightening rating sensitivities -Changes to Electrabel's shareholding structure leading to materially weaker ties with Engie LIQUIDITY Sound Liquidity: Cash and cash equivalents amounted to EUR11.6 billion at end-june 2017. Unused committed liquidity facilities at the same date were an additional EUR8.1 billion (excluding EUR5.3 billion allocated to cover outstanding commercial paper issues). Fitch believes that liquidity is sufficient to meet Engie's operating needs and debt maturities until at least the end of 2018. FULL LIST OF RATING ACTIONS Engie S.A. -- Long-Term IDR of 'A', Stable Outlook; -- Senior unsecured rating of 'A'; -- Subordinated notes rating of 'BBB+'; -- Short-Term IDR and CP programme rating of 'F1'. Electrabel S.A. -- Long-Term IDR of 'A', Stable Outlook. Engie Invest International S.A. (EII) -- Long-Term IDR of 'A', Stable Outlook. Engie Alliance GIE -- Senior unsecured rating of 'A'. Contact:

Vincent Race Analyst +44 20 3530 1862 Supervisory Analyst Chris Moore Director +44 20 3530 1683 Committee Chairperson Josef Pospisil Managing Director +44 20 3530 1287 Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Media Relations: Adrian Simpson, London, Tel: +44 203 530 1010, Email: adrian.simpson@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) https://www.fitchratings.com/site/re/901296 Non-Financial Corporates Hybrids Treatment and Notching Criteria (pub. 27 Apr 2017) https://www.fitchratings.com/site/re/896881 Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) https://www.fitchratings.com/site/re/886557 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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