BHP Billiton Limited's (ASX: BHP) position on the London stock exchange is once again the topic of debate as investors react to the miner's new dividend-sharing proposal.
Since BHP Billiton spun-off its non-core assets into South32 Ltd (ASX: S32) earlier this year, there are insufficient assets held within BHP's British arm to generate the income needed to pay London-based investors their dividends.
Because the miner is required to pay UK and Australian-based investors the same dividend, BHP is seeking approval from both sets of shareholders to change the way its dividends are funded.
This would involve the miner making an after-tax payment to the British company so it can pay London-based investors the dividend. Unfortunately, franking credits would also be transferred even though UK shareholders cannot benefit from them. In other words, the franking credits would simply go to waste.
It seems unlikely that this would be an issue to shareholders of the British arm of the miner, but Australian investors could certainly oppose the proposal.
As highlighted by The Australian Financial Review, a 'no' vote from Australian investors could act as a catalyst for the collapse of BHP's dual-listed company (DLC) structure. The AFR even quoted Brad Potter, head of Australian equities at Nikko Asset Management, as describing the DLC as a "relic" and saying "there is no need for it to exist."
Although BHP has indicated its commitment to maintaining the DLC structure, there are high costs and regulatory requirements involved in doing so. In saying that, undoing that structure could also be costly, while BHP would also lose its ability to raise equity from one of the world's most important financial markets.
Should you buy?
Although BHP's shares are hovering near their lowest price since 2008, the miner is still facing strong headwinds which could seriously hinder its progress moving forward.
It should also be noted that rejecting the proposal could potentially compromise BHP's progressive dividend policy, which could result in lower shareholder payments. Given that BHP is required to pay UK and Australian shareholders the same amount, such a rejection could deem the policy unsustainable (although it arguably already is).
Given these risks, I personally think there are far greater opportunities currently on offer to Australian investors.
