BHP, the 'Big Australian', is about to get bigger and more Australian – ABC News


BHP, the 'Big Australian', is about to get bigger and more Australian
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Mega-miner BHP is leaving London, coming home to further dominate Australia's stock market.
Twenty years ago, Australia's most valuable company merged with a British firm to make BHP-Billiton: the biggest miner on earth, extracting minerals from the Pilbara to Peru.
At the time it used what is known as a "dual listing", so you could trade shares on both the London Stock Exchange (LSE) and the Australian Stock Exchange (ASX).
Now, it is packing its bags with billions of pounds of value and coming home.
It is a big shift, according to Saxo Capital Markets Australian market strategist Jessica Amir, with a huge impact on the local share indices.
"By size, they're already a $221 billion company and it just means that their market value goes up quite significantly," she said.
"BHP is currently about 6 per cent of our market, the ASX 200, and it'll grow to about 10 per cent."
The ASX 200 is an index that tracks the fortunes of the 200 largest listed companies in Australia. (The 'All Ordinaries' covers the top 500). While that is an accurate description, it does not fully represent the reality.
Almost half the value of the all the companies on the ASX 200 list is accounted for by just 10:
With BHP set to get bigger, it means even more of Australia's stock market is tilted towards mining.
"Currently, the biggest company on the ASX is BHP. The third biggest is Rio Tinto and then Fortescue Metals is the 10th-biggest stock," Ms Amir said.
While jubilation flowed through Asian markets last week after China Evergrande narrowly stayed afloat, other Chinese developers are in major distress, spelling trouble for countries like Australia, writes Ian Verrender.
"So it means now there's going to be a huge over-concentration in the top 10 on mining first and foremost. And secondly, of course, iron ore miners."
All three companies make huge profits from exporting iron ore, primarily to China.
But there are huge risks: the fluctuating price of a global commodity and a complex political and trade relationship that is currently somewhere between a dispute and a trade war.
BHP is no minnow in London. The miner is the second most-valuable company listed on the London Stock Exchange behind pharmaceutical giant AstraZeneca.
It leaves the blue-chip FTSE 100 Index 20 years after it began its dual listing when it merged to create BHP-Billiton.
Rio Tinto will continue to hold a dual listing in both countries, but chief market analyst for, Neil Wilson, does not think the set-up works particularly well anymore.
"I think it shows the dual structure has lost a lot of appeal," he said.
"It's just too cumbersome in a world where you need to be making deals, particularly for BHP to decarbonise.
"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 corporate decisions and less margin to manoeuvre," she said.
"Simplifying and unifying the listing structure will help the company cut costs and more easily fund takeover deals in the future."
But it is not all one way out of the UK.
Petroleum monolith Royal Dutch Shell, better known as simply Shell, is also dual listed.
But it is scrapping its listing on the Dutch market and moving its head office to Britain from The Netherlands, blaming taxes and facing court actions about climate change.
In 2020, consumer products giant Unilever scrapped its similar Dutch/UK dual listing and moved to trade solely in London.
"BHP is a big loss for the FTSE 100," Mr Wilson said.
"It's been the biggest company by market capitalisation at times over the last year.
"But you win some, lose some – Unilever and Shell have gone the other way, so it's not all bad for London."
There is even an upside for the key index on London's share market, according to chief market analyst for CMC Markets, Michael Hewson.
"For several years, it's been widely acknowledged that the FTSE 100 is too heavily weighted towards the mining sector, so one less mining company 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 facing companies today, it does appear that simplifying corporate structures may well help to make decision making much easier, in that management should be able to make important decisions much more quickly."
Most Australians will own shares in BHP even if they do not know it, through their superannuation fund's investments in the stock market.
The company has required a series of shareholder votes to finalise the delisting, which will occur in the first quarter of this year.
Saxo Capital Market's Jessica Amir sees benefits for local shareholders.
"Down the track, it'll be more attractive because the dividends will get larger, and then there's the franking credits," she said.
Franking credits are a tax rebate to Australian shareholders who receive dividends that have already incurred company tax.
"BHP already pays fully-franked dividends, but it means that those fully-franked dividends will be shored up so they'll continue to pay them," she explained.
"They'll also bring forward $6 billion of franking credits as well."
The new solo listing would also make it easier for the company to hold share buy-back schemes, she said, further boosting benefits to shareholders.
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