Nomura upgrades BG Group on confidence about deal closure

Nomura has upgraded BG Group as it foresees the current discount to Shell's offer price reducing in coming months.

The value of the deal has slipped from the initial £47bn to around less than £40bn as Shell's share price tracked oil prices lower and investors bit their nails over regulatory hurdles in Australia and China.

But Nomura, despite lowering its 2016 oil price forecast to $55 a barrel, is concerned about the market's great reticence to "price appropriately" the probability that oil markets remain in a sustained recession, led by greater Middle East production, principally from Saudi Arabia and Iran.

"For investors seeking the insurance that an extended low case is largely priced in, we estimate that another 10-15% correction in share prices is required," the brokerage said.

Following the European Union antitrust clearance last week, analyst Theepan Jothilingam is confident of the deal's completion in early 2016.

A wider note from the Japanese bank said that a production cut from OPEC was unlikely, meaning the low oil price environment would run for several years.

Bolstered by sizable net foreign assets Saudi Arabia is willing to run a deficit for at least five years, while tolerating oil prices in the range of $50-60/bbl on a two-three year view, it added.