Investor backlash builds over Grant King’s BHP board seat

An investor backlash is building against Grant King’s appointment to the BHP Billiton board.

BCA president Grant King. Picture: Kym Smith.

An investor backlash is building against former Origin Energy managing director Grant King’s appointment to the BHP Billiton board as a spotlight is shone on capital allocation and board composition at the big miner.

It is understood a number of Australian institutional shareholders, anecdotally accounting for up to 40 per cent of BHP’s Australian share register, have voiced opposition to the ­appointment of Mr King, now president of the Business Council of Australia.

Multiple sources have confirmed to the The Australian there is growing disquiet about Mr King’s appointment among Australian investors.

Whether this results in anything more than a protest vote at BHP’s annual meeting in Melbourne this year remains to be seen.

Many of the holders have been burned by Origin’s debt-funded investment in the $US24.5 billion ($31bn) Australia Pacific LNG plant under Mr King, which saw Origin’s share price fall by two-thirds when oil prices fell in 2014, spurring a $2.5bn equity raising.

Origin yesterday provided a fresh reminder of the impact sliding oil prices have had on APLNG, detailing an $815 million second-half after-tax impairment on its 37.5 per cent stake in the LNG project because of reduced price assumptions.

This adds to a $1.03bn impairment on the APLNG stake announced on February 16 last year, the same day BHP announced Mr King was to be appointed to its board.

The problem many institutions have with Mr King’s appointment is that BHP is under fire from activist investor Elliott and many other shareholders over its ill-fated $US20bn investment in US shale in 2011.

Like APLNG, the shale investment has been written down because of falling oil and US gas prices, and weighed on investor returns.

Unlike shale, APLNG will generate strong cash flows at present oil prices.

But repayment of the debt Origin took on to build the project, relative to Origin’s size, will take up much of that.

Mr King ran Origin from when it listed in 2000 until his departure last year.

He has a strong reputation for strategic thinking and, before oil prices slumped in 2014, leaving Origin’s balance sheet exposed, he was regularly named as one of the nation’s and the world’s best chief executives.

At the time, BHP’s departing chairman, Jac Nasser, said Mr King’s appointment reflected a structured and rigorous approach to succession and planning.

“Grant is an excellent appointment and he will bring to the board his strategic thinking, immense intellect, and his ability to apply a long-term view,” Mr Nasser said.

“He has extensive executive experience leading a company that has operated in a volatile and changing global environment, and broad oil and gas industry experience.”

BHP declined to comment on the backlash, while Mr King did not take up an opportunity to comment through the BCA.

Opposition to Mr King’s appointment has not been publicly raised by Elliott, with the backlash so far appearing limited to Australian institutions.

In June, Brett Paton, a former BHP adviser and UBS vice-chairman who now chairs boutique wealth management firm Escala, sent letters to clients calling on them to support Mr Mackenzie as Mr Nasser’s replacement and to vote against Mr King’s election at the upcoming AGM.

“Origin’s share of total APLNG capex ended up being almost exactly equal to its current market cap,” Mr Paton said. “The lack of sensible risk assessment on a project that was likely a 12 to 15 per cent internal rate of return in the best case (at $US90/bbl oil) put shareholders at material risk.”

Some local institutional shareholders The Australian spoke to said they planned to vote against Mr King’s appointment.

Others said they had not decided.

Either way, at least a strong protest vote is to be expected at the AGM.