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S&P cut its rating on Shell after big BG merger

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Standard & Poors cut its rating on Royal Dutch Shell Plc (RDSa.L) by one notch to ‘AA minus’ from ‘AA’, citing a weaker financial risk profile, mainly due to soft oil prices, and continuing substantial capital expenditures.

The rating agency said the outlook on the company is negative reflecting possible adverse effects on credit metrics if the large BG Group Plc (BG.L) acquisition is finalised.

Shell announced in April that it has agreed to buy BG Group Plc for about 47 billion pounds, making it the first oil super-merger in a decade.

The rating agency said the company’s outlook could be revised to stable if the BG acquisition does not proceed further.

“Our rating on Shell does not factor in the BG acquisition at this stage, since the deal is yet to close. We understand that the acquisition is subject to numerous regulatory and shareholder approvals,” the rating agency said on Tuesday.

However, the company’s long-term and short-term ratings, which have been under CreditWatch since April, are removed.

Also, the rating on the company could be lowered further if the BG acquisition is finalised and further effects credit metrics of the company, S&P said in the note.

The rating agency now anticipates a lower ratio of funds from operations to debt over 2015 to 2017 and assess the company’s financial risk profile as “intermediate” instead of “modest.”

(Reporting by Rishika Sadam in Bengaluru) 21 July 2015

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