It’s crunch time for mining company BHP (BHP). This week, shareholders will vote on plans to end its dual listing in London and Sydney. Investors are expected to back proposals that could see BHP lose its FTSE 100 status and move its main listing to Australia, which has implications for both active and passive UK funds and the income they receive.
Currently BHP is two separate legal entities: BHP Group Plc, listed in London with the ticker BHP and Johannesburg and in New York as an American Depository Receipt (ADR); and in Sydney as BHP Group Limited with the same ticker.
The London shares trade at £23.78 and the Sydney shares trade at $46.68, based on prices on January 14. Even taking exchange rates into account, the Australian-listed shares trade at a premium, and this may tempt UK holders of the shares to hold on to them in the hope of a modest bounce in the value of their holdings.
At the moment, UK and Australian shareholders have equal voting rights and the company’s HQ is in Melbourne, Australia. The country is, after all, the base for the company’s mining activities — Queensland is the centre of its iron ore operations, with nickel produced out of Western Australia and coal in New South Wales.
Why is BHP Proposing This?
The company says it continually reviews the existing structure to see if it is fit for purpose. Unifying the two companies would help speed up corporate decisions such as mergers and acquisitions, BHP argues. For example, BHP Petroleum is planning to merge with Woodside Petroleum, a deal that could provide a windfall for existing BHP shareholders.
Of course, the carbon transition is a factor in BHP wanting greater flexibility in buying and selling off assets. BHP is conducting a review into its oil and gas assets, which were written down in value in 2021. This debate is taking place across the entire resources sector, with Shell under pressure to hive off legacy assets and focus on renewables. Shell itself has just received unanimous approval to delist from Amsterdam, shift its main listing to London, and clean up its share structure.
What Happens Next?
If the plans are approved, owners of BHP in London will see their shares swapped on a one-for-one basis for the Australian shares. BHP will remain listed in London but will lose its primary listing status, which means it may not be part of the FTSE 100 any longer. This means UK tracker funds may no longer need to have any allocation to the company.
BHP’s UK shareholders can hold on to their shares in BHP Ltd, or sell them. BHP insists that the the dividend policy will remain unchanged and investors will still be able to receive “franked” dividends, which include a tax credit. And investors will continue to have the same choice on dividends in their local currency, for example.
What’s Happening in Australia?
Hedge funds are using the plans and difference between London and Sydney share prices as arbritrage, as my Australian colleague Lewis Jackson explains.
“Because the local listing has historically traded at a higher price due to franking credits, Plc shareholders will pocket a premium if the deal goes through. Hedge funds are snapping up the cheaper Plc shares and selling Ltd short, planning to close out shorts once the company unifies,” the data journalist says.
He adds that the shares could rise in value if the deal goes through, because Australian trackers funds will have to allocate a bigger weighting to BHP. Shares in BHP are currently some of the most shorted in Australia, but this trend has not shown up in the UK – according to the FCA’s daily register of net short positions.
What Do Our Analysts Think?
Morningstar’s mining analyst Matthew Hodge, meanwhile, says the dual structure has had its day and thinks investors should vote for the unification.
“The dual-listed structure was established 20 years ago as a tax-effective structure following the Billiton merger, and it is no longer necessary in today’s operating environment, with the one group, BHP Group Ltd being sufficient,” he says.
“We think the unification plan makes sense and recommend shareholders vote in favour of the deal. Unification allows BHP to reduce corporate costs while making some forms of corporate activity, such as the proposed merger of BHP Petroleum with Woodside easier.”
What are the Details of the Vote?
Australians are awake before us so they get to vote first on January 20, before London shareholders then have their say. The proposal has a 75% hurdle rate to go through (the hurdle rate is the minimum required returned by a fund, hedge fund manager, or investor). If accepted, the deal will complete at the end of this month.