BHP, the ‘Big Australian’, is about to get bigger and more Australian

Mega miner BHP leaves London and comes home to further dominate the Australian stock market.

Twenty years ago, Australia’s most valuable company merged with a British company to create BHP-Billiton: the largest miner on Earth, extracting minerals from the Pilbara to Peru.

At the time, it used what is known as a “double listing”, so you could trade stocks on both the London Stock Exchange (LSE) and the Australian Stock Exchange (ASX).

Now it is packing its bags with billions of pounds worth of value and coming home.

According to Australian market strategist Jessica Amir of Saxo Capital Markets, it is a major shift with a huge impact on local stock indices.

“By size they are already a $221 billion company and it just means their market value is going up quite a bit,” she said.

The ASX 10

The ASX 200 is an index that tracks the fortunes of the 200 largest publicly traded companies in Australia. (The ‘All Ordinaries’ includes the top 500). While that is an accurate description, it does not fully reflect reality.

Nearly half the value of all companies on the ASX 200 list is explained by just 10:

• Half of the ASX top 10 are banks: Commonwealth Bank, NAB, Westpac, Macquarie and ANZ;
• Three of the top 10 are miners: Rio Tinto, Fortescue Metals Group and BHP;
• Two of these are vaccine manufacturer CSL and conglomerate Wesfarmers (which, in addition to Officeworks, Bunnings and Kmart, also runs major chemical companies);
• The other 190 companies together are roughly the same value as the top 10 of the ASX 200.

With BHP poised to get bigger, that means even more of the Australian stock market is focused on mining.

“Currently, BHP is the largest company on the ASX. The third largest is Rio Tinto and then Fortescue Metals is the 10th largest share,” said Ms. Amir.

“So it means there will now be a huge over-concentration in the top 10 on mining in the first place. And second, of course, on the iron ore miners.”

All three companies make huge profits from iron ore exports, mainly to China.

But there are enormous risks: the fluctuating price of a global commodity and a complex political and trade relationship that is currently halfway between a dispute and a trade war.

Duplicate listing over

BHP is no minnow in London. The miner is the second most valuable company listed on the London Stock Exchange, after pharmaceutical giant AstraZeneca.

It exits the blue-chip FTSE 100 Index 20 years after it began dual listing when it merged to create BHP-Billiton.

Rio Tinto continues to double-list in both countries, but Neil Wilson, Markets.com’s chief market analyst, says the setup isn’t working very well anymore.

“I think it shows that the dual structure has lost a lot of its appeal,” he said.

“It needs more flexibility and it’s ultimately a bottom-line thing, saving money.”

Ipek Ozkardeskaya, senior analyst at online bank Swissquote, agrees.

“It gives the company less flexibility in business decisions and less room for maneuver,” she said.

“Simplifying and unifying the listing structure will help the company cut costs and finance acquisition deals more easily in the future.”

Huge loss for LSE offset by other gains

But it’s not all a way out of the UK.

Petroleum monolith Royal Dutch Shell, more commonly known as just Shell, is also double-listed.

But it is delisting from the Dutch market and moving its headquarters from the Netherlands to Britain, blaming taxes and facing lawsuits over climate change.

In 2020, Unilever, a consumer products giant, scrapped its similar Dutch/UK dual listing and moved to trading exclusively in London.

“BHP is a big loss for the FTSE 100,” Wilson said.

“It was sometimes the largest company by market capitalization in the past year.

In fact, according to CMC Markets’ chief market analyst, Michael Hewson, there is an upward trend for the key index in the London stock market.

“For several years now, it has been widely recognized that the FTSE 100 is overweighted towards the mining sector, so one mining company less in the benchmark index will help correct this,” he said.

“From a domestic point of view, it’s not such a bad thing.

“With all the challenges businesses face today, it seems that simplifying corporate structures can make decision-making much easier as management needs to be able to make important decisions much faster.”

BHP to grow at home

Most Australians will own shares in BHP, even if they don’t know it, through their pension fund’s investments in the stock market.

The company will need a series of votes from shareholders to complete the delisting, which will take place in the first quarter of this year.

Jessica Amir of Saxo Capital Market sees benefits for local shareholders.

“Going forward, it will be more attractive because the dividends will get bigger, and then there’s the postage credits,” she said.

Postage is a tax credit for Australian shareholders who receive dividends on which corporation tax has already been paid.

“BHP already pays fully franked dividends, but it means those fully franked dividends will be supported so they will continue to pay them,” she explained.

The new solisting would also make it easier for the company to conduct share repurchase programs, she said, further increasing shareholder benefits.