Shareholders in BHP (BHP) have backed proposals that will see the mining company 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. London shareholders voted 97% in favour of the deal and 96% of Sydney shareholders backed it in a vote on Thursday morning.
What’s the Status Quo?
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.
Even taking exchange rates into account, the Australian-listed shares usually trade at a premium, and this may have tempted 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. British investors will effectively now own shares in an Australian company.
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?
From January 31, BHP will remain listed in London but will lose its primary listing status, which under current index rules means it drops out of the FTSE 100. This means UK tracker funds will no longer need to have any allocation to the company - and will need to sell the exiting stock and buy the replacement to balance the fund.
BHP’s UK shareholders can exchange their shares in BHP Ltd on a one-for-one basis, or sell them ahead of the changes. BHP insists that 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?
Ahead of the vote hedge funds used the difference between London and Sydney share prices to arbritrage, as my Australian colleague Lewis Jackson explained.
“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.
BHP's Sydney listed shares rose 3% to A$48.01 because Australian trackers funds will now have to allocate a bigger weighting to BHP. Shares in BHP were some of the most shorted in Australia ahead of the vote.
What Do Our Analysts Think?
Morningstar’s mining analyst Matthew Hodge, meanwhile, says the dual structure has had its day.
“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.
“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.”
This article was updated on January 20 to take into account the vote
