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S&P trims rating on oil major

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by Tsveta ZikolovaWednesday, 13 Jul 2016, 14:09 BST

Standard & Poor’s has trimmed its rating on Royal Dutch Shell (LON:RDSA), the Financial Times has reported. The move has been prompted by the group’s £35-billion takeover of former smaller London-listed peer BG Group completed earlier this year.

Shell’s share price has been little changed in today’s session, having lost 0.07 percent to stand at 2,106.00p as of 13:25 BST. The shares are marginally underperforming the broader London market, with the benchmark FTSE 100 index having inched 0.12 percent higher to 6,688.62 points. Shell’s shares have gained nearly 16 percent over the past year, and are up just under 38 percent in the year-to-date.

S&P lowered its rating on Shell from A+ to A yesterday, warning that the group’s credit metrics would remain weak this year.

“The downgrade reflects our view that, despite management’s commitment to reduce debt after the $54 billion acquisition of BG Group, Shell’s credit metrics and discretionary cash flow will remain materially below levels commensurate with the previous ‘A+’ rating in 2016 and 2017, as we expect continuing low oil and gas prices,” the ratings agency said, as quoted by the FT.

The Anglo-Dutch energy giant completed its acquisition of BG earlier this year, with the purchase taking the company’s net debt to nearly $70 billion. In an effort to reduce its massive debt pile, Shell has committed to offloading $30 billion worth of assets over three years. Last week, however, news emerged that the UK’s decision to leave the European Union could delay the group’s disposal programme, especially in the North Sea which has struggled to attract buyers for years.

Analysts meanwhile remain upbeat on Shell, with Morgan Stanley, which has an ‘overweight’ rating on the company, boosting its price target on the stock from 2,280p to 2,400p this week. Jefferies, which sees the FTSE 100 group as a ‘buy’, meanwhile hiked its valuation on the shares from 2,040p to 2,400p.

As of 14:10 BST, Wednesday, 13 July, Royal Dutch Shell Plc ‘A’ share price is 2,106.50p.

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