Why are BHP (ASX:BHP) shares more shorted right now than ever before?

What’s happening to BHP shares?

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A record number of investors are shorting BHP Group Ltd (ASX: BHP) shares following the company’s upcoming structural change. The world’s second-largest miner has seen its shares tank around 30% from an all-time high of $54.55 in August.

At Friday’s market close, BHP shares added further pain to investors finishing the day down 1.53% to $38.03.

Short-sellers weigh in on BHP shares

Short-sellers are cashing in on quick money as BHP is finding itself caught between the group’s dual-listed company structure.

As reported by the Australian Financial Review (AFR), investors are taking advantage of the company’s recently announced plan to end its United Kingdom-listed PLC (public limited company) shares.

The 20-year-old dual-listed company structure began when BHP Ltd merged with Billiton PLC. The corporate structure enabled both companies to amalgamate without legally acquiring or merging, creating a tax-efficient business structure.

Between the pair, the shares are not transferable. The dividend payment amount and voting rights are equal. However, the ASX and UK-listed shares trade differently. The Australian shares command a higher price. This is because of Australia’s much-loved franking credits available to BHP Ltd shareholders.

Since August, hedge funds have heavily shorted the ASX-listed BHP shares and picked up the group’s cheaper PLC shares. In fact, almost 210 million BHP shares, or 7.1% of its entire issued capital, are shorted.

The dual-listing company structure will eventually collapse, leading to a 1-for-1 swap of PLC shares to BHP shares. Undoubtedly, big firms such as UBS, Morgan Stanley and Credit Suisse will be booking huge profits following repatriation day.

About the BHP share price

Since the beginning of the year, results have been disappointing for BHP shareholders, the share price falling by more than 10%. The company’s share price trekked higher until August before plummeting to 2020 lows this month.

BHP presides a market capitalisation of roughly $113.93 billion, and has approximately 2.95 billion shares outstanding.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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