Bloomberg.com: Shell Loses AAA Credit Rating, Lowered to AA+ by S&P (Update2)
April 19 (Bloomberg) -- Royal Dutch/Shell Group, which slipped from Europe's largest oil company by market value to second after cutting oil and gas reserves, lost the top credit ratings it has maintained for 14 years, Standard & Poor's said.
The ratings company lowered its debt rating one level to AA+ from AAA, the highest possible. Now that Shell has lost the AAA, only two publicly traded companies in Europe hold the highest credit rating from both major ratings companies.
The loss of the AAA rating comes after the resignation on March 3 of Shell Chairman Philip Watts, who was criticized by investors for missing growth targets and ran the exploration unit when some of the reserves were booked. Walter van de Vijver, his successor as head of that division, also stepped down. Chief Financial Officer Judith Boynton was replaced today.
``Obviously, there's cachet around having a AAA and most companies who lose their AAA don't get it back,'' said Louise Purtle, a strategist at CreditSights, an independent research firm in New York. ``It's prestigious and headlines whenever someone's been tossed out of an-ever more exclusive club.''
Shell, based in London and The Hague, on Jan. 9 said the company improperly recorded 20 percent of its reserves as proven, erasing 3.9 billion barrels worth more than $120 billion from its books. It has since cut its reserves twice more, by a total of 4.35 billion barrels, or 22 percent, to 15 billion barrels.
``The third recategorization was a bit too much at the AAA level,'' said Emmanuel Dubois-Pelerin, the S&P managing director in Paris who handled the review. ``The combination of that and clear governance issues that have now been exposed in a more clear light'' prompted the downgrade.
A Shell audit report released today ``highlights areas of durable weak corporate governance with significant digressions from SEC rules,'' Dubois-Pelerin wrote in his report.
S&P will keep its ratings on watch for further review, where the assessment has been since the first reserve adjustment on Jan. 9. The ratings could fall as low as AA- and likely not further, he said.
Thomas Coleman, who is handling a ratings review for Moody's Investors Service in New York, couldn't immediately be reached.
The company's bonds fell. The extra premium, or spread, investors demand to buy Shell's 750 million euros of 3.5 percent bonds due in 2007 instead of equivalent government debt widened by 2 basis points to 7, according to RBC Capital prices on Bloomberg.
Investors including Cesar Perez at M&G Group Plc in London said a downgrade wouldn't have a large impact on Shell shares. That's because efforts to maintain the ratings may have limited its capacity for share buybacks, which it suspended last year.
According to a Goldman Sachs report on Feb. 16, 77 percent of Shell investors surveyed considered the ratings irrelevant and 55 percent considered it ``a hindrance to value creation.''
A downgrade thins the ranks of AAA-rated companies in Europe to just two: Nestle SA, the world's largest food company, whose ratings are also on watch for a downgrade, and drugmaker Novartis AG. Exxon Mobil Corp., the world's largest investor-owned energy company, becomes the only AAA-rated publicly traded energy company. Exxon has held the ratings since 1919.
Shell told investors in March that it hadn't forgotten its commitment to conservatism, even after the reserve revision and the ratings review.
``AAA is great to have and we don't like to lose it for the wrong reasons,'' Jeroen Van der Veer, who replaced Watts as chairman, said on the conference call in March.
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