With growing speculation that management of mining heavyweight BHP Billiton Limited (ASX: BHP) is considering a demerger of its non-core assets, analysts are divided as to which stock exchange the demerged entity would be best fit for.
While UBS mining analyst Glyn Lawcock is in favour of a single listing on the Australian stock market, others are suggesting a primary listing on the Johannesburg Exchange (and a secondary listing on the ASX) would be most appropriate given the location of many of the assets.
Although a dual listing approach can be used to increase the liquidity of shares and give investors a greater choice in where to trade them (while also giving the company a wider equity-raising pool), such an arrangement can become quite complex and expensive. Furthermore, Lawcock argues that the dual-listing structure would see franking credits go to waste on investors who couldn’t realise them.
Given CEO Andrew Mackenzie’s focus on simplicity and transparency, it would seem more likely that the spun-off entity – which could be worth between $20 and $22 billion – would only be listed on the ASX. In fact, it is believed that the same project team that is working on the demerger proposal even explored the possibility of unwinding BHP Billiton’s own dual-listing structure (the miner is also listed on the London Stock Exchange), but decided against it due to the complications involved.
On the other hand, many of the assets the company would likely include in the sell-off, such as aluminium, manganese and nickel assets, were originally acquired through the 2011 merger with South Africa’s Billiton.
A demerger of the miner’s non-core assets would be an excellent way for the company to return more value to shareholders who, for years, have recognised below-par returns. Shareholders would likely receive shares in the new entity while the management teams of both entities would be able to increase their focus on improving the value of their respective operations.
Of the miners, BHP remains the most attractive investment prospect, given its greater level of diversification over rivals such as Rio Tinto Limited (ASX: RIO) or Fortescue Metals Group Limited (ASX: FMG).