BHP Group - Response re press speculation on Petroleum business posted on Company News.

[idpickering]

Here; viewtopic.php?p=435030#p435030

I hold BHP Group in my HYP, and I'm sure other HYPers do too, so this item may be of interest to those who frequent this board.

Ian.

[funduffer]

...and dividend announcement tomorrow.

[idpickering]

...and dividend announcement tomorrow.

Yep. My right index finger is poised.....

I trimmed my BHP Roup holdings recently as imho they’d become a bit top heavy in capital value terms in my HYP.

Not sure I want shares in the outfit BHP are in discussions with though?

Ian.

[Darka]

...and dividend announcement tomorrow.

Yep. My right index finger is poised.....

I trimmed my BHP Roup holdings recently as imho they’d become a bit top heavy in capital value terms in my HYP.

Not sure I want shares in the outfit BHP are in discussions with though?

Ian.

Thanks Ian,

Looking forward to your post tomorrow.

Indeed, the company "Woodside" are Australian I believe so not sure I want those in my ISA/SIPP, either.

[Gengulphus]

The gist of the announcement is that BHP is discussing the possibility of selling its petroleum business to Woodside Petroleum Ltd, which I presume is an Australian oil & gas company, receiving Woodside shares which BHP would then distribute to its shareholders. If it goes ahead (which is by no means certain), it sounds like a similar sort of corporate action to that involved in the February 2014 Vodafone / Verizon Communications deal, for those who experienced that deal (though doubtless quite a few details will differ).

I've mixed feelings about the possibility. On the one hand, any such corporate action would produce admin activity for my HYP, if only to keep my CGT records of it up to date and take it into account in my tax return, and I generally prefer as little such admin activity as possible. On the other, I already have two miners (BHP and Rio Tinto) and two oil & gas companies (BP and Shell) in my HYP, and the high forecast yields of the miners currently put them on 14.3% of the HYP's total forecast income, well above my normal self-imposed per-sector limit of 10%, and consequently the "holes in the ground" group of sectors is on 20.3% of the HYP's total forecast income, marginally above my similar 20% limit. If the deal does go ahead, selling the Woodside shares soon after receiving them will end up having four benefits for me: it will go some way towards reducing those overweighted income issues, it will avoid becoming tripled-up in the oil & gas sector, it will make my sector diversification clearer as BHP's business would overlap less with BP's and Shell's, and it will avoid foreign dividend taxation issues (*). So I'm pretty certain that if it goes ahead, I'll sell the Woodside holding it produces quite promptly, and not regard the extra admin activity as entirely wasted...

Immediate practical consequences are quite limited, of course, but at least for me, one does exist: I have been musing about whether my HYP's forecast income imbalance has grown to the point of wanting to top-slice BHP and/or Rio Tinto. The practical consequence is that I'll stop musing about that for BHP until this has resolved - no point in top-slicing while it's a realistic short-term possibility that the company is then going to effectively push me into a second top-slice!

(*) Not saying that other HYPers need to regard those as benefits - just that in my particular circumstances and with my preferences, I regard them that way.

Gengulphus

[idpickering]

The gist of the announcement is that BHP is discussing the possibility of selling its petroleum business to Woodside Petroleum Ltd, which I presume is an Australian oil & gas company, receiving Woodside shares which BHP would then distribute to its shareholders. If it goes ahead (which is by no means certain), it sounds like a similar sort of corporate action to that involved in the February 2014 Vodafone / Verizon Communications deal, for those who experienced that deal (though doubtless quite a few details will differ).

I've mixed feelings about the possibility. On the one hand, any such corporate action would produce admin activity for my HYP, if only to keep my CGT records of it up to date and take it into account in my tax return, and I generally prefer as little such admin activity as possible. On the other, I already have two miners (BHP and Rio Tinto) and two oil & gas companies (BP and Shell) in my HYP, and the high forecast yields of the miners currently put them on 14.3% of the HYP's total forecast income, well above my normal self-imposed per-sector limit of 10%, and consequently the "holes in the ground" group of sectors is on 20.3% of the HYP's total forecast income, marginally above my similar 20% limit. If the deal does go ahead, selling the Woodside shares soon after receiving them will end up having four benefits for me: it will go some way towards reducing those overweighted income issues, it will avoid becoming tripled-up in the oil & gas sector, it will make my sector diversification clearer as BHP's business would overlap less with BP's and Shell's, and it will avoid foreign dividend taxation issues (*). So I'm pretty certain that if it goes ahead, I'll sell the Woodside holding it produces quite promptly, and not regard the extra admin activity as entirely wasted...

Immediate practical consequences are quite limited, of course, but at least for me, one does exist: I have been musing about whether my HYP's forecast income imbalance has grown to the point of wanting to top-slice BHP and/or Rio Tinto. The practical consequence is that I'll stop musing about that for BHP until this has resolved - no point in top-slicing while it's a realistic short-term possibility that the company is then going to effectively push me into a second top-slice!

(*) Not saying that other HYPers need to regard those as benefits - just that in my particular circumstances and with my preferences, I regard them that way.

Gengulphus

Thanks for your input Gengulphus. You might recall I recently did exactly what you’re mulling over, ie top sliced my Rio Tinto and BHP Group holdings. Going forward I have no intention of selling any more of either miner. Like you, should it come to pass that I end up with some Woodside shares in my HYP, I’m unlikely to hang on to them. We ‘ll see what transpires.

Ian.

[Arborbridge]

Gengulphus neatly summs up my own position: around 13% of my forecast income is from RIO and BHP, so some quasi "market trading" wouldn't come amiss. I would sell the Woodside charts and re-deploy - which is why I used the term "quasi" market trading.


Arb.

[scrumpyjack]

Gengulphus neatly summs up my own position: around 13% of my forecast income is from RIO and BHP, so some quasi "market trading" wouldn't come amiss. I would sell the Woodside charts and re-deploy - which is why I used the term "quasi" market trading.


Arb.

and your income may be even higher if the Woodside shares you are given are treated as a dividend, as happened with South 32.

[Arborbridge]

Gengulphus neatly summs up my own position: around 13% of my forecast income is from RIO and BHP, so some quasi "market trading" wouldn't come amiss. I would sell the Woodside charts and re-deploy - which is why I used the term "quasi" market trading.


Arb.

and your income may be even higher if the Woodside shares you are given are treated as a dividend, as happened with South 32.

More complexification

[MDW1954]

In the above speculation and commentary, we seem to be collectively assuming that the Woodside shares will be listed in Australia only.

That may not be the case.

MDW1954

[tjh290633]

In the above speculation and commentary, we seem to be collectively assuming that the Woodside shares will be listed in Australia only.

That may not be the case.

MDW1954

From today's RNS: https://www.investegate.co.uk/bhp-group ... 51118723I/

- On completion, it is expected Woodside would be owned approximately 52% and 48% by existing Woodside and BHP shareholders respectively, and will remain listed on the Australian Securities Exchange (ASX) with listings on additional exchanges being considered.

and regarding " Rump BHP":

- It is expected that a unified BHP would have its primary listing on the ASX, a standard listing on the London Stock Exchange (LSE), a secondary listing on the Johannesburg Stock Exchange (JSE), and a sponsored Level II ADR program on the New York Stock Exchange (NYSE).

It looks highly likely that the Woodside share will have a London listing, as does S32.

Incidentally, todays massive dividend makes my share of income from miners almost 17%, while that from oils is a mere 5%. Having a third oil share would be a change for the better in that respect.

Here is my breakdown:

Summary                                                                
Sector      Weight    Income    Cost      Yield    Shares              
Banks/Fin     2.00%     1.27%     4.35%    2.72%   LLOY                
Bldg          3.02%     3.31%     3.82%    4.69%   TW.                 
Eng           7.04%     4.22%     1.80%    2.73%   BA.      IMI        
Food          6.83%     5.92%     4.37%    3.64%   TATE     ULVR   RB. 
Leisure       8.84%     5.03%    10.87%    2.25%   IGG      DGE    MARS
Insur        10.03%    14.36%    11.40%    6.16%   AV.      ADM    LGEN
Media         3.25%     1.93%     5.09%    2.54%   PSON                
Mining        8.98%    16.88%     8.46%    7.91%   BHP      S32    RIO 
Oil/Gas       4.95%     5.19%     9.50%    4.48%   BP.      RDSB       
Pharm         5.64%     5.21%     2.51%    3.86%   AZN      GSK        
Property      8.83%     5.68%     8.14%    2.77%   SGRO     BLND   PHP 
Retail        7.18%     4.00%    11.05%    2.01%   MKS      TSCO   KGF 
Support       4.77%     1.88%    -2.12%    1.39%   CPG      SMDS       
Telecom       4.97%     6.31%     8.83%    5.46%   BT.A     VOD        
Tobacco       4.44%     8.68%     4.12%    8.37%   IMT      BATS       
Utils         9.24%    10.14%     7.80%    4.70%   UU.      NG.    SSE 
                                                                       
Totals:     100.00%   100.00%   100.00%    4.26%       16     13      7
Medians:      6.23%     5.20%     6.45%    3.75%                       
                                          Total:       36

Sectors are by my own definition.

TJH

[MDW1954]

It looks highly likely that the Woodside share will have a London listing, as does S32.

TJH

Thanks, Terry. Agreed.


MDW1954

[monabri]

Trying to get a handle on how much of the BHP business is being put into the venture.

https://www.bhp.com/media-and-insights/ ... y-company/

"The crude oil and condensate, gas and natural gas liquids (NGLs) produced by BHP’s petroleum assets are sold on the international spot market or domestic market. The total gross asset value of the BHP petroleum business as at 30 June 2021 was US$15.4 billion, it contributed US$3.9 billion to BHP group revenue and it generated EBITDA of US$2.3 billion for the year ended 30 June 2021."

Today, BHP announced

https://www.investegate.co.uk/bhp-group ... 51118723I/

"The Board has determined to pay a final dividend of US$2.00 per share or US$10.1 billion, which includes an additional amount of US$0.91 per share (equivalent to US$4.6 billion) above the 50% minimum payout policy. Total dividends announced of US$3.01 per share, equivalent to an 89% payout ratio."

Does the relative size of a single dividend of $10bn compared to the $15bn gross asset value indicates that we should not be that concerned? The issue (for me) is that I'm going to end up with some new shares which might be of small market value, maybe worth a few hundred quid ?

[monabri]

Market Cap of Woodside ~20 billion Aus dollars ...£10.6bn.

BHP assets of $15.4bn = £11.1bn.

Yet the split is in favour of Woodside?

[ursaminortaur]

According to the FT BHP plans to just have a secondary listing on the LSE and therefore will no longer be in the FTSE 100

https://www.ft.com/content/47e226aa-315c-48e3-aef3-44f83075dcc3

BHP to shift main stock market listing from London to Sydney
FTSE 100 set to lose one of biggest listed companies under radical overhaul
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The UK’s blue-chip FTSE 100 index is set to lose one of its biggest companies after miner BHP said it would unify its dual-corporate structure and shift its primary stock market listing to Australia.
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Shares in BHP rose 3.4 per cent to £23.58 in London as hedge funds scooped up the UK-listed shares, which in recent years have traded at a 20 per cent discount to the Sydney-listed shares because of the favourable tax treatment of dividends in Australia.
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Under existing rules, BHP will be removed from the blue-chip index and because of their investment mandates, many UK shareholders will be forced to sell.

Legal and General, the UK’s largest asset manager, said it was disappointing to lose a company of the calibre of BHP and it would review the plan.

“However, BHP’s proposal is supported by a robust and clearly articulated value case with the potential for investors in the UK company to benefit from the possible narrowing of discount to the Australian company,” said Nick Stansbury, head of climate solutions at LGIM.

[Gengulphus]

In the above speculation and commentary, we seem to be collectively assuming that the Woodside shares will be listed in Australia only.

That may not be the case.

I at least was not assuming anything about where it will be listed or its shares will be traded, but that it is currently a purely-Australian company and will remain so. Plenty of foreign companies are listed or traded in London, but if they pay dividends, their dividends are generally taxed under the foreign country's tax regime (*). There are a few apparent exceptions to that, but all but one of them that I know of are "dual listed company" structures, which are basically a UK company and a foreign company, neither of which is a subsidiary of the other, but tied together in a very close alliance that commits them to deal with their shareholders on equal terms - dividends per share of equal value, matching corporate actions, etc - and to share their funds as needed to implement that. BHP is one of those - the two companies involved are BHP Group plc (the UK company) and BHP Group Limited (the Australian company). And once that is taken into account, it's not an exception to the "foreign company dividends are paid under the foreign country's tax regime" general rule: if you buy shares in the UK company, their dividends are taxed under the UK tax regime (*); if you buy shares in the Australian company, their dividends are taxed under the Australian tax regime (*).

The other apparent exception I'm aware of is Royal Dutch Shell. It was once a "dual listed company" structure, but that ceased when it was "reunified" in 2005 and became a purely-Dutch company. However, a special arrangement was negotiated at the time, with the Dutch taxman's agreement, under which RDSA shares pay dividends under the Dutch tax regime (as expected for a purely-Dutch company), but RDSB shares pay them under the UK tax regime. This involves an arrangement they call the "Dividend Access Mechanism", which involves the RDSB shares actually receiving their dividends from a couple of Royal Dutch Shell's UK subsidiaries via a Jersey trust, which I suspect is one of a number of safeguards designed to ensure that the whole special arrangement is adhered to even if Royal Dutch Shell want to change it. Or to be precise, to ensure it as far as possible: it's conceivable e.g. that the UK subsidiaries involved will at some point fail to have enough distributable reserves to be legally allowed to pay the full amount of the dividends declared on the RDSB shares by Royal Dutch Shell - in which case Royal Dutch Shell itself would make up the difference, but the part of the RDSB dividend it pays would be paid under the Dutch tax regime, not the UK tax regime. Quite a messy arrangement in principle, but at least so far the possible messy complications haven't happened, and it ensures that the "foreign company dividends are paid under the foreign country's tax regime" general rule is actually followed by Royal Dutch Shell, despite apparently not being followed for the RDSB shares.

Anyway, Woodside Petroleum could in principle change itself into a "dual listed company" structure or negotiate a Royal-Dutch-Shell-like arrangement, but I doubt very much that either of those will happen. "Dual listed company" structures have been pretty unfashionable for many years now, so that proposals to "reunify" them are more likely than proposals to create new ones, and the recent FT report mentioned by ursaminortaur of one by BHP itself indicates the direction thinking is headed about them in this particular case. And the RDSB special arrangements depended on the Dutch taxman's agreement, and various things I've heard about the Dutch taxman over the years indicate that he's more likely to agree special arrangements than most, so I wouldn't count on the Australian taxman agreeing to similar arrangements...

So while I'm definitely making an assumption that Woodside Petroleum will remain a purely-Australian company rather than knowing it for a fact, I can see very little reason to doubt that it will turn out to be a fact and that any dividends it pays will be paid under the Australian tax regime. I don't know enough about the Australian tax regime to know whether that's actually a financial disadvantage or merely a potential future such disadvantage, but if this goes ahead and I keep the Woodside Petroleum shares, it will at least have the admin disadvantages of having to find out about the Australian tax regime, keep track of any relevant changes to it, and report on my Australian dividend income separately from my main dividend income in my tax return. Nothing major, but unwelcome nevertheless, and it will reinforce my other reasons for not wanting to keep the Woodside Petroleum shares described in my earlier post.

(*) All of these statements need to be understood in the context that if the country you are tax-resident in is different, that country's taxman gets a chance after the dividend has been paid under the foreign tax regime. In the case of those who are tax-resident in the UK and hold foreign shares, the general rule is that they can offset any tax paid to the foreign taxman against any similar tax due to the UK taxman on the same payment, up to the point where that UK tax is reduced all the way to zero - but if the foreign tax paid is more than the UK tax due on that payment, it stops at that point: any foreign tax paid in excess of the UK tax due on that payment cannot be reclaimed, nor offset against other UK tax due. The net result is that one generally ends up paying tax totalling the larger of the foreign tax paid and the UK tax due on the payment.

Gengulphus

[moorfield]

According to the FT BHP plans to just have a secondary listing on the LSE and therefore will no longer be in the FTSE 100

https://www.ft.com/content/47e226aa-315c-48e3-aef3-44f83075dcc3

Presumeably that will exclude BHP as a new HYP purchase in future but HYPsters can continue to hold, top up and report here.

[scrumpyjack]

So while I'm definitely making an assumption that Woodside Petroleum will remain a purely-Australian company rather than knowing it for a fact, I can see very little reason to doubt that it will turn out to be a fact and that any dividends it pays will be paid under the Australian tax regime. I don't know enough about the Australian tax regime to know whether that's actually a financial disadvantage or merely a potential future such disadvantage, but if this goes ahead and I keep the Woodside Petroleum shares, it will at least have the admin disadvantages of having to find out about the Australian tax regime, keep track of any relevant changes to it, and report on my Australian dividend income separately from my main dividend income in my tax return. Nothing major, but unwelcome nevertheless, and it will reinforce my other reasons for not wanting to keep the Woodside Petroleum shares described in my earlier post.

(*) All of these statements need to be understood in the context that if the country you are tax-resident in is different, that country's taxman gets a chance after the dividend has been paid under the foreign tax regime. In the case of those who are tax-resident in the UK and hold foreign shares, the general rule is that they can offset any tax paid to the foreign taxman against any similar tax due to the UK taxman on the same payment, up to the point where that UK tax is reduced all the way to zero - but if the foreign tax paid is more than the UK tax due on that payment, it stops at that point: any foreign tax paid in excess of the UK tax due on that payment cannot be reclaimed, nor offset against other UK tax due. The net result is that one generally ends up paying tax totalling the larger of the foreign tax paid and the UK tax due on the payment.

Gengulphus

The Australian tax system is more beneficial for dividends than the UK which is why the BHP Plc shares have generally traded at a discount to BHP Ltd.

Under the Australian system dividends paid by an Australian company out of profits subject to Australian corporate tax have a tax credit (called 'franked') so as not to suffer the double taxation of corporate tax and income tax. For UK holders that can be used as a credit against any UK tax liabilities on that dividend. So it is of no benefit to a UK holder in a tax free account or if not liable to tax on dividends, but it is no loss either as no tax has been 'deducted'.

So It is better if they stay as purely an Australian company.

[MDW1954]

So it is better if they stay as purely an Australian company.

I know that you are an accountant of some considerable experience and seniority. So I would welcome a clarification of the above.

Am I correct in thinking that it is better rephrased as:

So it is better if they stay as purely an Australian company if an investors holds BHP shares outside an ISA or SIPP, but of no consequence either way if the shares are held inside an ISA or SIPP.

MDW1954

[scrumpyjack]

Yes quite happy for you to amend the wording. Though I did say in the previous sentence that there was no benefit if holding in a tax free account.