The risk of losing Shell’s listing to New York is a bigger threat to the City of London than missing out on a few IPOs.
Ever since Brexit, the City of London has been worried about its declining role in global finance. Those concerns were most conspicuously realized in the London Stock Exchange’s failure to win last year’s biggest initial public offering — by a British company, no less. But the more substantial risk involves the bourse’s current members.
You don’t have to take my word for it. Listen to Wael Sawan, chief executive officer of Shell Plc, by most measures the biggest London-listed company: He’s ready and willing to look elsewhere to give his undervalued shares their due.
The problem here isn’t Brexit. It’s European investor apathy — if not outright hostility — toward fossil fuels. Once, natural resources giants like Shell saw London, chock full of mining and energy businesses, as their natural home; today, not so much. Instead, the US, now the world’s biggest oil producer, beckons.
And if Shell does leave, it probably wouldn’t be a one-off. The company is the largest constituent of the FTSE 100 index and the pressure on BP Plc — the fifth-largest index member — to follow would be enormous. Add to the potential leavers Glencore Plc, the commodity trading firm with a big coal business, and that’s three of the top 10 FTSE 100 firms. Shell and BP aren’t just big companies in London, but huge dividend payers — stalwarts for the income investors who are such an essential part of the UK equity market.
Market valuation of the ten largest companies in the FTSE100 index
Sources: London Stock Exchange and Bloomberg
When I spoke to Sawan in Houston in March, he refreshingly admitted that not everything was alright in the UK. “I have a location that clearly seems to be undervalued,” he said, trying to explain the gap between London-listed Shell and its arch rivals Exxon Mobil Corp. and Chevron Corp., both listed in New York....
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