[miningmx.com] – BHP Billiton has bowed to demands from its UK shareholders that the group list the company created from its planned demerger on the London Stock Exchange.
“We are pleased to offer an additional listing in London in response to the interest investors have shown in the new company,” said BHP Billiton CEO, Andrew Mackenzie, in a statement today.
“We continue to work towards completion of the demerger in the first half of the 2015 calendar year, subject to receipt of the necessary approvals,’ he added. A final board decision on the demerger would only be made once the approvals were concluded.
BHP Billiton announced on August 19 that it would demerge its coal, aluminium, nickel and manganese assets in South Africa, Mozambique and Australia into a company that would trade primarily in Perth and have a secondary inward listing in Johannesburg.
A UK listing was not originally part of the proposal for the demerger as it was thought to be too costly and complicated.
However, many of the funds in London are not mandated to hold shares in companies with predominantly emerging market exposure and would therefore have to sell their shares in the Spinco creating an initial, and sizeable, overhang for the company.
Jacques Nasser, chairman of BHP Billiton, however, said in a letter to investors in September that he was “pleased by the support for the de-merger and the level of interest investors have shown in the new company’.
The interest UK funds have shown in the demerger shows, to some extent, that political risk is not always a deterrent for investors when the assets are good.
“The political risk argument is only used as an excuse to divest,’ said Sholto Dolamo, head of resources at the Public Investment Corporation (PIC).
“I’m not convinced about it because there are many companies, such as Glencore, which is held widely by UK and US funds, that operates in the Democratic Republic of Congo,’ he said.
Randgold Resources, a firm listed in London but with assets in the DRC, Mali and Ivory Coast, has for years traded at a premium to other gold stocks because it turns in profits annually. “The biggest single risk for investors is management, not geography,’ said Mark Bristow, CEO of Randgold Resources at a recent lunch.
There does also seem to be a pragmatic reason for listing BHP Billiton’s Spinco in the UK, though. This relates to the fact that shareholders fear that if listed in Perth and Johannesburg only, the stock will be rapidly sold down which would diminish returns for UK holders.
“If it isn’t listed in London it will be a very weak stock, at least initially,’ said Des Kilalea, an analyst for RBC Capital Markets in the UK. “It’s not that it’s a great company necessarily, it would just be sold down very aggressively,’ he added.
It’s one of the reasons why Anglo American has repeatedly stood back from demerging its platinum assets held in Johannesburg-listed Anglo American Platinum, said Kilalea. “The value destruction would be massive initially,’ he said.
