Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
Sanlam Private Wealth
Jan 28, 2022
In August 2021, the BHP Group proposed the unification of its two-company structure into one listed entity – BHP Group Limited. The transaction was approved by 98% of BHP shareholders on 20 January 2022, and the change will happen automatically in our clients' portfolios on 31 January 2022.
Following the merger of BHP Ltd and Billiton Plc in 2001, the combined entity had a two-company structure. BHP Billiton Ltd was listed on the Australian Securities Exchange (ASX), while BHP Billiton Plc was listed on the London Stock Exchange (LSE), with a secondary listing on the JSE. In 2018, BHP Billiton Ltd and BHP Billiton Plc were renamed BHP Group Ltd and BHP Group Plc respectively. The two companies have the same board, management and economic rights. The unification collapses the two-company structure, with the listing of a single share, BHP Group Ltd, on the ASX, with secondary listings on the LSE and the JSE.
Unification provides for a simpler and more agile BHP corporate structure. For example, the group currently needs to hold two annual general meetings, adhere to two sets of company laws and have two tax residencies. It also simplifies the dividend funding arrangement – at the moment Ltd needs to transfer cash to Plc, which leads to a loss of tax credits (franking credits) available for Australian investors. It will also serve to significantly reduce the complexity of future corporate actions.
In the past, the cost of collapsing the two-company structure would have been significant. This has now declined, however, as some tax losses have been harvested, and the company now feels that the benefits exceed the costs. The proportion of earnings from the Plc business has decreased from ~40% in 2001 to less than 5% today, making the current structure inefficient, with cash increasingly needing to be transferred from Ltd to Plc to meet dividend obligations.
From an investment point of view, nothing will change fundamentally – you will swap your BHP Plc shares for BHP Ltd shares on a one-to-one basis. All economic rights will remain the same.
Unfortunately, however, the transaction is likely to be classified as a CGT event. For SA tax resident shareholders, where BHP is held as a capital asset, our interpretation is that the following will generally apply:
Sale of BHP Plc shares to BHP Ltd
Acquisition of Ltd shares
Since the announcement of the unification in August last year, the BHP Plc share price has gone up by 11%, while the BHP Ltd share price has declined by 8% (total return in US dollars until 27 January), fully closing the discount at which Plc traded to Ltd (which came about as a result of Australian tax credits). Over the same period, Rio Tinto – a close cousin of BHP – has declined by 3%. This implies that the proposed unification has likely added about 14% return to your BHP holding compared to what would have been the case otherwise.
From a tax perspective, assuming a base cost of R250 per share and a BHP share price of R500, the maximum CGT for individuals would be R45 per share. A 14% higher share value equates to ~R70 per share – so you will in all likelihood be more than compensated for having to pay CGT earlier than anticipated.
Please note that the views and opinions expressed above are those of the Sanlam Private Wealth tax team. Although reasonable care has been taken in preparing this article, it is not intended nor should it be construed as tax advice. We recommend that you contact your portfolio manager or your tax consultant if you would like further information or advice.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.