Shell is considering quitting the London Stock Exchange for New York in what would be the biggest blow to the UK’s struggling stock market so far.
Wael Sawan, the oil giant’s chief executive, said the
company is looking at “all options” for its listing amid concerns it is
under-appreciated by investors.
In an interview with Bloomberg, he said: “I have a location
that clearly seems to be undervalued.”
His comments will spark fears that Shell, which is Britain’s
most valuable listed company and worth around £180bn, could become the latest
blue chip business to flee the London market.
Its departure would deal a major blow to investors that rely
on dividend income from FTSE 100 companies, including tracker funds and pension
schemes that support millions of retirees.
The FTSE 100 index has traditionally been dominated by oil
and gas companies, as well as mining and commodity stocks.
But there are concerns that a growing focus on
environmental, social and governance (ESG) measures among institutional
investors is beginning to threaten that status, with some companies starting to
defect to the US, the world’s largest oil producer.
Ashley Kelty, head of oil and gas research at Panmure
Gordon, said Mr Sawan’s comments reflected a negative perception of oil and gas
in Europe, where Shell has faced criticism from climate activists and some of
its own shareholders for not investing more in renewable power.
The oil giant is also under pressure to close a valuation
gap with US rivals such as Exxon Mobil and Chevron.
Mr Kelty said: “In New York, they [Shell] won’t come under
the same amount of pressure around the environment and greenwashing - they will
be allowed to get on with what they do.
“If they do go, it would suggest they want to row back on
the renewable side even farther than they’ve admitted previously because [in
Europe] they will get penalised.
“Americans are far more positive towards oil and gas than
Europeans. They don’t see it as being the great evil that is perceived to be
here, and the tax regime is more supportive.”
He added that the comments from Shell’s chief executive
should also be seen as a “warning shot” to the UK government and Sir Keir
Starmer’s Labour opposition, amid concerns about anti-business policies.
Labour has vowed not to raise corporation tax above the
current 25pc level but has separately suggested it will introduce a “proper”
windfall tax on oil and gas companies that is tougher than the Government’s
existing energy profits levy. Sir Keir has also vowed to introduce a package of
“day one” employee rights that have raised concerns among some businesses.
A decision by Shell to quit London’s stock exchange would be
just the latest in a string of recent blows to the UK’s most important capital
market.
Mining giant Glencore last year chose to spin off and list
its coal business in New York rather than London, while its secondary listings
went to Toronto and Johannesburg.
Any decision to shift Shell away from London would fuel
concerns that Glencore could move its remaining listing to the US – an option
that has already been mooted by analysts.
Rival energy giant BP, which is the fifth-largest company on
the index, could also follow suit.
It comes as Shell looks to shift its business away from oil
and gas towards greener sources of energy.
But its hybrid approach has risked alienating traditional
investors focused on profits, while failing to appease more activist investors
concerned about climate change.
Mr Sawan said he was focused on a two-and-half-year
turnaround plan, which he dubbed a “sprint”, aimed at slimming down the company
and boosting its valuation.
Shell is aiming to reduce operating costs by up to $3bn
(£2.4bn) by the end of next year, lower its capital expenditure range to
between $22bn and $25bn and target shareholder returns via dividends and
buybacks of up to 40pc of cash flow.
The energy boss said the current undervaluation presented a
“fantastic investment opportunity”, adding: “I will keep buying back those
shares, and buying back those shares at a discount.”
But he pointed to the gap in valuation between Shell and its
New York-listed rivals Exxon Mobil and Chevron and acknowledged the company may
have to take more drastic action if that gulf is not resolved by the end of
next year.
Mr Sawan told Bloomberg: “If we work through the sprint, and
we are doing what we are doing, and we still don’t see that the gap is closing,
we have to look at all options.”
Any decision to move Shell’s primary listing away from
London would need to secure at least 75pc approval in a shareholder vote.
It comes only three years after Shell scrapped its dual
listing structure, moved its headquarters from the Netherlands to the UK and
ditched “Royal Dutch” from its name. At the time, the move was hailed as a vote
of confidence in Britain.
Yet a string of disappointing initial public offerings and
investor pessimism over the UK economy has sparked an exodus of companies
across a range of sectors.
Chip giant Arm, building materials supplier CRH, Paddy Power
owner Flutter and travel operator Tui are among companies to have abandoned
London in recent months.
UK stock funds have been unloved for several years,
suffering 34 consecutive quarters of net selling, according to Calastone.
Another £823m left funds in March.