BHP spin-off South32 makes ASX debut

South32’s shares have made a subdued debut, listing at $2.13 as the BHP spin-off became Australia’s third largest miner.

Shares in BHP Billiton’s spin-off company South32 have debuted on the ASX at $2.13 each, giving the diversified miner a market capitalisation of $11.3 billion on listing.

The debut price sits towards the lower end of the $2.00-$2.50 range expected by analysts and would rank it as Australia’s third largest miner by market value but just outside the ASX top 20.

in Australia’s biggest listing since AMP, shares hit as high as $2.20 each in the first few minutes of trade, with nearly 14 million shares changing hands.

“It was certainly at the lower end of the valuation range but it was a very wide range,” CMC Markets chief market strategist Michael McCarthy said.

Chief executive Graham Kerr played down any suggestion he might be disappointed by the debut price.

“I wouldn’t say I’m unhappy, but I’m not focused too much on it, to be honest,” Mr Kerr told reporters at a bellringing ceremony in Perth. He said he was focused on reducing costs and improving efficiency in the face of weaker commodity prices.

Earlier this month, BHP Billiton shareholders voted almost unanimously in favour of carving out the new company, backing management claims that the demerger would likely create more value and give a smaller BHP the balance sheet to take advantage of acquisition opportunities.

The demerger is the third for BHP Billiton in the past 15 years, following the spin-outs of its flat steel division, which ultimately became BlueScope, and its rod and tube steel division, now known as Arrium.

South32 will house BHP’s non-core aluminium, manganese, nickel and zinc mines.

It holds $674 million in net debt, and has in place a $1.5 billion credit facility.

Mr McCarthy said the company was unlikely to be a runaway success in the short term.

“Given the mix of commodities in the South32 vehicle we’re not expecting it to catch fire anytime soon,” he said.

“At the same time it’s been done at a time when valuations in these industries are quite low so it should hold the value in its share price quite well.”

But the company has relatively low debt levels, which may make it a possible takeover target for other mining giants like Glencore Xstrata.

While Mr Kerr wouldn’t be drawn on the listing price, he argued the company offered long term value for shareholders.

“We think we have high quality, well maintained assets that have been cash-generative throughout the (commodity) cycle,” he told reporters in Perth.

“We’ve spent a lot of time talking to investors about why we think South32 is a good investment and in the end they will make up their own mind and the share price will reflect that.”

South32 is also due to start trading on the Johannesberg Stock Exchange and the London Stock Exchange later today.

Many UK investors are expected to sell their shares in South32, as it is ineligible for key UK market indexes that many funds there track. Investors received one share in South32 for every BHP share held.

“I think it will be Thursday or Friday until everything settles down and we get a real, clear picture on where South32 will trade,” said Evan Lucas, a Melbourne-based analyst at broker IG. “It’s going to be pretty volatile until then, particularly given there was such a massive range of expectations ahead of the debut.”

The company derives its name from the 32nd parallel south line of latitude that links its main assets in Australia and South Africa.

Earlier, BHP (BHP) shares slid more than 7 per cent as the stock adjusted for the demerger of South32 today. It was their biggest fall since 2008.

Today is the first day of trade when BHP shareholders are no longer entitled to receive a one-for-one South32 security by virtue of holding BHP Billiton stock and the first day where the market values the larger company without the demerged assets.

 

By 11am (AEST), BHP shares were 5.69 per cent lower at $30.64, against a benchmark decrease of 0.21 per cent. Earlier, the stock plunged as much as 7.1 per cent, its biggest one-day fall since December 2008.

BHP ceased trading with an entitlement to South32 shares from the end of May 15 on the Australian Securities Exchange, the London Stock Exchange and the Johannesburg Stock Exchange.

Steven Daghlian, market analyst at Commsec, said BHP was certainly the biggest drag on local trade this morning.

“If it wasn’t for BHP, the market would be up a little,” he said.

With Business Spectator