Iberdrola : Implementation of the second capital increase by means of a scrip issue approved by the General Shareholders' Meeting of 8 April 2016 and publication of the corresponding information memorandum.

Secretary to the Board of Directors

To the National Securities Market Commission

Bilbao, 25 October 2016

Dear Sirs,

Pursuant to article 17 of Regulation (EU) No. 596/2014 on market abuse and article 228 of the restated text of the Securities Market Law approved by the Royal Legislative Decree 4/2015, of 23 October (texto refundido de la Ley del Mercado de Valores aprobado por el Real Decreto Legislativo 4/2015, de 23 de octubre) and related provisions, we hereby inform you that the Board of Directors of Iberdrola, S.A. ("Iberdrola" or the "Company"), at its meeting held today, has resolved to carry out the implementation of the second paid-up capital increase, approved by the shareholders acting at the General Shareholders' Meeting of Iberdrola held on 8 April 2016 under sections B and 1 to 11 (both inclusive) of item number six on the agenda (the "Capital Increase").

For the purposes of article 26.1.e) of Royal Decree 1310/2005, of 4 November, which partially elaborates upon the provisions of Law 24/1988 of 28 July, on the Securities Market, in connection with the admission of securities to trading on official secondary markets, public offers for the sale or subscription of securities and the prospectus required for such purposes (Real Decreto 1310/2005, de 4 de noviembre, por el que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de admisión a negociación de valores en mercados secundarios oficiales, de ofertas públicas de venta o suscripción y del folleto exigible a tales efectos), we provide you, enclosed hereto as an annex, with the information memorandum (documento informativo) regarding the implementation of the Capital Increase approved by the Board of Directors of Iberdrola in the aforementioned meeting.

This information is provided to you for the appropriate purposes. Yours faithfully,

Secretary to the Board of Directors

IMPORTANT INFORMATION

This communication does not constitute an offer to purchase, sell or exchange or the solicitation of an offer to purchase, sell or exchange any securities. The shares of Iberdrola, S.A. may not be offered or sold in the United States of America except pursuant to an effective registration statement under the Securities Act or pursuant to a valid exemption from registration.

This communication contains forward-looking information and statements about Iberdrola, S.A., including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, capital expenditures, synergies, products and services, and statements regarding future performance. Forward-looking statements are statements that are not historical facts and are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates" and similar expressions.

Although Iberdrola, S.A. believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of Iberdrola, S.A. shares are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of Iberdrola, S.A., that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the public documents sent by Iberdrola, S.A. to the Comisión Nacional del Mercado de Valores.

Forward-looking statements are not guarantees of future performance. They have not been reviewed by the auditors of Iberdrola, S.A. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date they were made. All oral or written forward-looking statements hereby made or otherwise attributable to Iberdrola, S.A. or any of its members, directors, officers, employees or any persons acting on its behalf are expressly qualified on its entirety by the cautionary statement above. All the forward- looking statements included herein are based on information available to Iberdrola, S.A. on the date hereof. Except as required by applicable law, Iberdrola, S.A. does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

1. PURPOSE
2. Background

   At the General Shareholders' Meeting of Iberdrola, S.A. (hereinafter, "Iberdrola" or the "Company") held on 8 April 2016, the shareholders approved, under sections B and 1 to 11 (both inclusive) of item number six on the agenda (the "Shareholders' Resolution"), a wholly paid-up share capital increase with a charge to the reserves contemplated in article 303.1 of the Companies Act (Ley de Sociedades de Capital), by means of the issuance of ordinary shares for the free allocation thereof to the shareholders of the Company (the "Capital Increase").

   Under the Shareholders' Resolution, the maximum market value of reference of the Capital Increase would be 985 million euros and it could be implemented within one year following approval thereof.

   Likewise, by means of the Shareholders' Resolution, the following powers were delegated in favour of the Board of Directors, with express substitution powers and in accordance with article 297.1.a) of the Companies Act: (i) to determine the date, within one year following the approval of the Shareholders' Resolution, on which the Capital Increase should take place and agree on the timetable for the implementation of the Capital Increase; (ii) to determine the reserves, among those included in the Shareholders' Resolution, with a charge to which the implementation of the Capital Increase and the acquisition by the Company of the free allocation rights pursuant to the purchase commitment assumed by Iberdrola will be carried out; (iii) to determine, within the limits set forth in the Shareholders' Resolution, the object of such purchase commitment; and (iv) to establish the conditions of the Capital Increase in all matters not provided for in the Shareholders' Resolution.

   In this regard, the Board of Directors of the Company has approved, on the date hereof, to implement the Capital Increase and set the market value of reference for the Capital Increase in an amount within the minimum of 867 million euros and the maximum of 938 million euros, which is -in any case- within the limits established in the Shareholders' Resolution. The specific amount corresponding to the market value of reference of the Capital Increase, which shall in all cases guarantee a fixed price of the purchase commitment assumed by Iberdrola of, at least, 0.135 gross euros per right, will be communicated by means of a supplement to this information memorandum that is expected to be published on 3 January 2017.

   All the foregoing without prejudice to the payment of a dividend of 0.03 gross euros per each share of Iberdrola with the right of receiving dividends, that was approved by the shareholders acting at the General Shareholders' Meeting under item number five of the agenda, and that took place on 8 July 2016.

3. Purpose

Pursuant to article 26.1.e) of Royal Decree 1310/2005, of 4 November, which partially elaborates upon the provisions of Law 24/1988 of 28 July, on the Securities Market, in connection with the admission of securities to trading on official secondary markets, public offers for the sale or subscription of securities and the prospectus required for such purposes (Real Decreto 1310/2005, de 4 de noviembre, por el que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de admisión a negociación de valores en mercados secundarios oficiales, de ofertas públicas de venta o suscripción y del folleto exigible a tales efectos), the admission to trading of the new shares of Iberdrola issued on the Capital Increase shall not require the preparation and publication of a prospectus relating thereto "provided that the said shares are of the same class as the shares already admitted to trading on the same regulated market and there is a document available containing information regarding the number and types of shares and the rationale for and details of the offer."

In view of the foregoing, Iberdrola issues this information memorandum, the purpose of which is to provide all of the information referred to in the preceding paragraph that is available on the date hereof with respect to the Capital Increase. Upon determination of the market value of reference of the Capital Increase, the number of free allocation rights needed to allocate one new share of Iberdrola, as well as the fixed price for the purchase of such rights under the purchase commitment assumed by the Company, this information will be made available to the public by means of a supplement to this memorandum through a notice of a significant event (comunicación de hecho relevante) that is expected to be published on 3 January 2017. In addition, once the implementation of the