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BHP plans to move listing to Australia – what’s happening and why it matters

We look at BHP unification plans and what they mean for investors.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

BHP announced on 17 August it’s planning to abandon its UK dual listing and shift to a single Australian listing. The Australian shares will be tradeable on the London Stock Exchange.

With Unilever also abandoning its dual-listed structure in recent times, we thought it might be worth looking at what a dual-listed structure is, what’s changing and why it matters.

What’s a dual listing?

Dual-listed companies are made up of two separate businesses listed on two separate stock exchanges, each with a set share of the underlying business. In BHP’s case that means BHP Group Limited listed in Australia and BHP Group plc in the UK – each owns 50% of the underlying business.

Each Limited share is in theory worth exactly the same as each Plc share – though in practice there may be a slight difference in the price at which they trade on their different exchanges. However, each company is entitled to an equal share of the underlying business and pays equal dividends.

Crucially, each company adheres to the local company rules in its market, maintains its own share register and own board of directors. This means each company is usually entitled to appear in stock market indices for its own region. BHP Plc is therefore a constituent of the FTSE 100, while BHP Limited is in the Australian AS&P/ASX 200.

This is different to a simpler cross-listing – where a business lists its shares on more than one exchange, but all those shares are in the same company. Cross-listed shares are usually not allowed to be included in major stock market indices.

What are the advantages of a dual listing and why is BHP changing it?

Being dual-listed can have tax advantages for a business – particularly if they’re created through a merger that would otherwise result in significant capital gains charges. However, the main reason for a dual listing is to make it easier to raise capital.

Inclusion in multiple indices means inclusion in increasingly popular tracker funds. It also means active fund managers who are restricted to certain markets are better able to buy the stock. Both of these things have tended to push share prices higher, reduced the cost of funding, and also given the company a bigger pool of investors to approach when looking to raise new money.

So why would BHP look to do away with their dual listing?

As capital markets have globalised, the benefits of dual listings have reduced. Investors are no longer as focused on their home market, and far more willing to look into international alternatives – that makes simple cross-listing more attractive.

There are costs associated with maintaining two separate corporate entities too. Those include extra legal and administrative costs, but also added complexity when it comes to completing major corporate actions. For example, BHP is currently looking to demerge its petroleum assets, and doing so from one unified corporate entity is far easier than across two.

What would this mean for investors in BHP Plc?

If the unification goes ahead (it’s still subject to shareholder approval), UK investors in BHP Plc will be given a BHP Limited share for each Plc share they currently hold.

That share will be listed on the London Stock Exchange, and shareholders will have the opportunity to opt for sterling dividends. The net effect will be pretty minimal for most direct shareholders – although of course they will benefit from the greater flexibility, and slightly lower costs that are the driving reason for the acquisition. Remember all investments can fall as well as rise in value, so investors could get back less than they invest.

What would BHP’s unification mean for the UK market?

BHP’s exit from the FTSE indices means the greatest effect of BHP’s planned unification would be on the “UK stock market” as a whole.

BHP is forecast to pay out $17.7bn in dividends next year, equivalent to £12.9bn. With 50% of that expected to be funnelled through BHP Plc, that could account for as much of 10% of all dividends paid by the FTSE 100 last year.

Clearly BHP’s decision to exit the UK market will have a considerable effect on the overall yield of the FTSE 100. That doesn’t matter for individual investors or active fund managers – who can still buy the Limited shares on the London Stock Exchange or in Australia. However, it might be more of a problem for passive fund managers and investors who could be losing a considerable portion of their dividend yield. Dividends are variable and aren’t guaranteed, and yields are not a reliable indicator of future income.

Given the deal needs support from 75% of UK shareholders, and passive funds are an increasingly large part of the market, that could yet be a stumbling block for the move.

Read our latest research note on BHP Group

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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