BHP listing shift set to trigger funds rush

4 minute read

BHP Billiton Chief Executive Andrew Mackenzie is silhouetted against a screen projecting the company's logo at a round table meeting with journalists in Tokyo, Japan June 5, 2017. REUTERS/Kim Kyung-Hoon

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  • Shareholders approve BHP listing consolidation in Sydney
  • BHP to comprise >10% of ASX 200 after Jan. 31 - brokers
  • Weighting increase set to trigger index-fund buying

SYDNEY, Jan 20 (Reuters) - A change in corporate structure at BHP Group (BHP.AX) is likely to unleash a wave of selling in London and an even bigger buying surge in Sydney, with investors braced for a potentially bumpy end to the world's biggest listed miner's dual listing.

Shareholders on Thursday approved a company proposal to abandon a two-decade-old structure with listings in London and Sydney in favour of a single primary listing in Australia as part of a sweeping overhaul of BHP founded 137 years ago as Broken Hill Proprietary in Australia. read more

BHP Group Plc (BHPB.L) will drop out of the FTSE 100 (.FTSE) and other related indexes, while beefing up the size and value of the Australian listing from January 31, when the changes take full effect.

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The plan, unveiled in August last year, aims to make it easier for BHP to allocate capital and analysts expect it foreshadows future acquisitions and dealmaking. read more

The Australia-listed entity will swell from about 6.5% to comprise 10.7% of the S&P/ASX 200 index (.AXJO), based on an estimate from financial services firm Wilsons Advisory.

That means index-tracking funds will need to sell BHP in London and buy more of it in Sydney and possibly quickly, brokers said, while active managers who wish to remain overweight will also need to add eventually.

"Everyone's trying to work out if the market is long or short (Australia-listed) BHP Ltd, come implementation day," said John Lockton, head of Australian equities at Wilsons Advisory in Sydney.

He expects buying in Australia "will swamp forced selling" in London. "I think for the most part it will basically happen on the day, but there will be some trying to pre-empt ... after (Thursday's) vote," he added.

The deal could prompt the sale of about 140 million London-listed shares - worth 3.5 billion pounds ($4.8 billion) at Wednesday's closing price - based on an estimate by advisory firm Grant Samuel in a report commissioned by BHP.

Wilsons estimates probable buying of between 90 million and 250 million shares in Sydney.

BHP has yet to announce the results of its shareholder vote, although proxy tallies show that scrapping the dual listing won overwhelming support. It had been unanimously recommended by the company board. BHP was not immediately available for comment on Thursday.

BIGGER AUSTRALIAN

S&P Dow Jones Indices had said it will increase BHP's weighting in the ASX 200 on Jan. 31 and FTSE Russell has said it will delete BHP from its UK index series on the same day.

There are signs some investors have moved in advance.

A discount on the London shares has evaporated in recent months as investors have bought into the cheaper stock ahead of its conversion into Australia-listed shares.

Passive investment giant Vanguard, already the biggest owner of BHP's Australian shares, said it will be able to purchase London stock ahead of Jan. 31 on behalf of Australian funds.

Short interest in the Aussie shares has also more than doubled to 9.5% since plans for the corporate structure changes were announced last August, based on regulatory data. Turnover has increased, possibly as funds buy in but hedge against any hitches in the deal.

"I'd expect that to unwind pretty quickly," said Mathan Somasundaram, chief executive of Sydney-based research firm Deep Data Analytics

When the dust settles, index funds will also be owning a re-shaped ASX 200 with even more exposure to resources and especially iron ore and its biggest buyer - China.

"It reinforces the value nature of that equity bourse versus something like the Nasdaq," said George Boubouras, head of research at K2 Asset Management in Melbourne, a BHP shareholder, referring to the concentration of miners and financials which account for more than half the index.

"It may be the type of equity bourse you want to be holding in calendar 2022 in a global rising interest rate environment."

($1 = 0.7338 pounds)

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Reporting by Tom Westbrook. Editing by Jane Merriman

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