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The (Australia): Royal Dutch Shell shares fall on debut

The (Australia): Royal Dutch Shell shares fall on debut

Thursday July 21, 2005 – 7:54AM

Shares in oil giant Royal Dutch Shell Plc, formed by the unification of Royal Dutch and Britain’s Shell Transport and Trading, slipped on their market debuts on Wednesday as fund buying tapered off.

Shell “A” shares, which originate from the oil company’s former Dutch parent, fell when trading opened and closed down 3.18 percent at 1,766-1/2 pence.

Shell “B” shares, which spring from its former UK parent, opened up and then slipped to close 1.69 per cent lower.

Shell shares have enjoyed strong rises since October, when the Anglo-Dutch company announced its intention to consolidate. Part of the rise was in expectation that funds tracking the major market indexes would be forced to increase their holdings, because the combination boosts Shell’s market capitalisation and its weighting on indexes.

“You’re seeing a bit of that unwinding now. The shares have come up a long way on the reweighting argument,” said a trader.

Shares in Shell Transport had bounded up from around 420p in October to around 530p at the close of business on July 19 on buying by tracker funds and a surge in oil prices to record highs above $60 a barrel.

Dealers said the “A” shares lost more ground on Wednesday than the “B” shares following Tuesday’s extended auction on the London Stock Exchange, when the “A” shares put in a last-minute spike and the “B” shares reversed gains. The LSE auction automatically matches buy and sell prices at the end of a trading session.

“There was a lot of to-ing and fro-ing in the auction last night, and a few people have been caught out,” the trader said.

The different levels between the share classes were in line with the prediction of many analysts that investors would prefer the B shares because their dividends were not subject to Dutch withholding tax.

“The difference between “A” and “B” shares is that “A” shares will comply with the Dutch tax regime and withhold 25 percent tax on dividends. The “A” shares will, therefore, probably trade at a discount to the “B” shares,” Rabo Securities said in a recent research note.


The old Royal Dutch/Shell group was 60 percent owned by the Royal Dutch Petroleum Co. and 40 percent by the Shell Transport and Trading Co. Executives of the operating group were drawn from the boards of each holding company.

The merger into a unified company was aimed at restoring confidence in Shell after a damaging reserves overbooking scandal last year, which was blamed partly on the complicated management and ownership structure.

Trading volume in the A shares was 47 million, while that in the B shares was over 44 million, above average levels in recent weeks but below Tuesday’s volumes.

Some dealers discounted the differential between the shares.

“I wouldn’t make too much of it on the first morning’s trading. There’s different tax on the A and B shares, but people in the UK were underweight Shell as it was (Shell Transport & Trading); that’s the B stock, and that’s why it’s (been) up today,” one trader said.

Some analysts say the “A” shares may be supported in future by Shell’s statement that it will probably favour making buybacks of “A” shares over “B” shares.

Following the restart of its buyback programme, Shell is expected to repurchase around $4.5 billion of its own shares before the end of the year. Citigroup said this week the firm could buy back up to $30 billion worth of shares before the end of 2007 if it chose.

Investment bank Morgan Stanley has set a price target of 2,065 pence per share, with an “overweight” rating, on both A and B shares.

Shares of the old Royal Dutch will continue to trade on the Amsterdam exchange as investors controlling less than 95 percent of shares backed the merger, preventing a squeeze out of minority shareholders.

Royal Dutch Shell has started another tender offer in the hope it can acquire the requisite 95 percent and delist Royal Dutch.

A FTSE spokeswoman said Royal Dutch Shell’s weighting in the FTSE 100 index was 9.3 per cent during the morning, compared to 10.1 per cent for rival oil major BP. This reflected a 5.5 per cent weighting for A shares and a 3.8 per cent weighting for the Bs. BP shares were down 1.3 per cent.

The unification leapfrogs Shell over rivals such as banking group HSBC, previously on an 8.1 per cent weighting, and telecoms firm Vodafone, on 7.2 per cent.

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