On 18 June 1999, the Board of BG plc announced preliminary plans to restructure and refinance the Group. BG today confirms that it plans to proceed with the restructuring and refinancing and is providing more details of the proposals, which it intends to put before shareholders for approval in November.

Overview of the restructuring

The corporate restructuring involves the incorporation of a new holding company, BG Group plc, and the separation of BG's existing businesses into two new sub-groups of the holding company. Transco, the BG business which operates Britain's gas transportation infrastructure, will become one sub-group, ring-fenced for regulatory purposes. BG's other businesses, of which BG International is the largest, will be carried on in the other separate sub-group. The transaction is subject to the approval of the court and shareholders and receipt of certain consents.

The corporate restructuring is being accompanied by a proposed financial restructuring. The Transco sub-group will issue around £1.5 billion of bonds which will be transferred together with new shares in BG Group plc to BG shareholders in exchange for their existing shares in BG. The introduction of further debt into Transco will bring its gearing more into line with best practice for UK regulated utilities.

The restructuring is intended to provide a corporate structure that will allow the separate businesses more freedom to develop and pursue growth opportunities, while bringing Transco into line with best regulatory practice as regards its transparency, clarity and capital efficiency.

The necessary consents have been given by the energy regulator, Ofgem, and the UK Government.

Commenting on the proposed restructuring, Richard Giordano, BG Chairman, said: "These proposals will increase the capital and structural efficiency of the Group. They give us a solid platform from which to go forward and further increase shareholder value. The Board unanimously recommends them to shareholders."

David Varney, Chief Executive, said: "Shareholders and consumers should both gain when Transco is financed more efficiently, subject to greater regulatory clarity and transparency, and the Group has increased flexibility to pursue international opportunities."

Details of the restructuring

The restructuring is being implemented through a court-approved scheme of arrangement.

Shareholders on the BG register at the scheme record time, expected to be 6pm on 10 December 1999, will receive new shares in BG Group plc and bonds in BG Transco Holdings plc in return for the cancellation of all their existing ordinary shares in BG plc.

This will be on the following basis:

• For every 9 existing ordinary shares, 8 new shares in BG Group plc

  and

• For every 7840 existing ordinary shares, one package of bonds in BG Transco Holdings plc. The bond package will consist of an allocation of one index-linked bond, one fixed-rate bond and one floating rate bond, each with a face value of £1,000.

The number of new ordinary shares and bond packages allotted to shareholders will be rounded down to the nearest whole number. Fractions of new shares and/or bonds resulting from the rounding down will be aggregated and sold, with the proceeds being distributed to entitled shareholders.

Because each bond making up the package will, as is customary, have a face value of £1,000, BG shareholders who hold less than 7840 ordinary shares with a value of around £27,000 in BG, currently the large majority, will not receive bonds. They will receive cash for their fractions as well as their new BG Group shares.

Details of the Bonds

The bonds will be issued by BG Transco Holdings plc and will be listed only on the London Stock Exchange.

Around £1.5 billion of bonds will be issued, of which around £500 million will be index-linked bonds, around £500 million will be fixed-rate bonds and around £500 million will be floating rate bonds.

All payments of principal and interest on the index-linked bonds will be indexed to retail price inflation. The initial interest rate on these bonds will be 4.1875 per cent per annum and the interest will be paid twice a year over the 23 year life of the bonds.

The fixed-rate bonds will bear interest at 7.0 per cent per annum which will be paid once a year over the 25 year life of the bonds.

The floating rate bonds will bear interest at a rate which will be reset every six months at 0.90 per cent above LIBOR (London Inter Bank Offered Rate - the benchmark for wholesale interest rates), at that time and paid twice yearly over the 10 year life of the bonds.

The price at which the bonds can be sold in the market will depend on a number of factors, including general interest rates and market conditions at the time of sale. The price obtained on the sale of any bonds may be higher or lower than their face value.

Outstanding consents

Many of the non-Transco assets can only be transferred from BG to the non-regulated sub group of BG Group if consents are received from third parties and/or regulatory bodies. The exact timing of the transfer of the various businesses will depend upon the consent of the court and receipt of consents from third parties and/or regulatory bodies. The Directors believe that sufficient consents will have been obtained in a form satisfactory to the company to enable the proposals to be implemented.

Timetable and process

Full details of the proposals and proxy forms for both a court meeting and an extraordinary general meeting (EGM) will be sent to shareholders by 18 October.

Shareholders will be asked to approve the restructuring by voting at the court meeting and EGM, both of which are to be held in Birmingham, on 10 November.

If shareholders approve the restructuring, the scheme is expected to become effective on 13 December. Dealings in the new shares and in the bonds are expected to commence on 13 and 14 December respectively. New share certificates, bond details and/or proceeds from the sale of fractional entitlements are expected to be sent to shareholders around 20 December.

Share dealing facility

The company intends to offer a free share dealing service for a limited period after the scheme has been implemented, for small shareholders who either wish to reinvest some or all of the proceeds from the sale of their fractional entitlements in purchasing more new BG Group shares, or who wish to sell all of their holdings in BG Group shares. Further details will be given nearer the time.

Outline of tax treatment for UK shareholders

Shareholders will "roll over" any gain or loss in their BG plc shares into shares of BG Group for Capital Gains Tax purposes. Any gain made on the receipt of bonds, or cash for fractional entitlements to bonds or shares, will be liable to Capital Gains Tax subject to available exemptions and reliefs.

The Inland Revenue has granted clearance in respect of the Scheme under section 707 Income and Corporation Taxes Act 1988 ("ICTA") under section 215 ICTA and under 138 Taxation of Chargeable Gains Act 1992.

Further information

To answer shareholders' questions about the restructuring, a shareholder helpline has been set up. This will operate between 9am-5pm, Monday to Friday, from Monday, 4 October and calls will be free of charge on 0800 917 1577.

Notes to Editors

1. Background to the restructuring

• By virtue of its history, BG has inherited a corporate structure which is now inconsistent with best practice for utility companies. Currently Transco's regulated assets and the associated Public Gas Transporter's Licence are held by BG plc and are therefore legally and financially indistinct from other Group operations. This structure does not provide for maximum clarity and transparency for regulatory purposes. Neither does it give the Group sufficient flexibility to pursue opportunities in the non-regulated businesses, particularly BG International.

• Current best practice is that such regulated assets should be kept in a separate subsidiary of the parent company, ring-fenced for regulatory purposes and with appropriate safeguards for consumers. The greater structural flexibility created by the new corporate structure will make it easier for BG International to take advantage of overseas opportunities.

Current Structure

Proposed Structure

*Subject to consents

• The Monopolies and Mergers Commission report of June 1997 on the Transco price control noted that greater use of debt rather than equity finance could reduce the cost of capital. BG's 1997 'B' share issue was a partial response to the need to increase Transco's capital efficiency.

2. Shareholders

BG has 1,207,006 shareholders. The average individual shareholding is 488 shares. There are 3,944,049,993 shares in issue.

3. BG Shares

The value of a BG plc share as at close of business on 30 September 1999 was 349p which, adjusted for the dividend of 4.6p, is equivalent to 344.4p.