AMP CEO Andrew Mohl made the following extraordinary claim at last week’s AGM:
Australia is now the fourth largest private pension savings market in the world, underpinned by our mandatory superannuation savings regime. It is worth over $800 billion – and it is projected to triple between 2005 and 2015. By 2015, the Australian private sector pension market is expected to be the biggest in Asia – and indeed bigger than the markets of all other Asian countries combined, including Japan, India and China.
So, little old Australia will have $2.4 trillion in super by 2015 and this will outstrip the three billion citizens of Asia. Clearly, this flood of capital poses a question of where all the money will go.
It is a question that our two remaining dual listed companies, BHP Billiton and Rio Tinto, should consider because their Australian shares trade at a premium to the London versions. Peter Costello’s superannuation revolution will exacerbate this flood of capital, such that both companies could easily move to a 100% weighting in the Australian indices without causing too much indigestion for local funds.
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There’s something quite offensive about Rio Tinto having $30-40 billion worth of assets in Australia while being run out of London. For goodness sake, it should be mandatory that anyone reaping more than $5 billion a year Down Under should at the very least endeavour to base itself here.
So, how should these DLCs be unwound? The most obvious method would be simply to surrender their spots in the FTSE 100 and move to a secondary London listing. The ASX would immediately increase their weighting and there would be huge sales of stock by UK institutions to Australian institutions, including the Future Fund which will soon have $30 billion in cash burning a hole in its pocket.
At least this would end the publication of completely inaccurate figures in the weekend newspapers claiming that BHP Billiton is only worth $96 billion and Rio Tinto $34 billion. This happens because the papers take their feed from the ASX which excludes the London-listed shares. Rio Tinto has $76 billion worth of shares on the UK market and BHP Billiton has $70 billion worth so the two companies are actually capitalised at $110 billion and $166 billion respectively, which really is just too big for a relatively small market like Australia.
Given the extraordinary boom in Australian resources stocks, maybe both outfits should contemplate a demerger of their iron ore or coal operations. Each spin-off could be loaded up with debt, giving them literally tens of billions of dollar to fund buybacks of the UK shares as part of an Australianisation program.
As one of the great mining provinces of the world, our stock market is lopsided with two giants and then nothing else worth more than $10 billion, excluding Woodside Petroleum at $30 billion. It’s time the two big gorillas redoubled their focus and commitment to Australia while breaking themselves up because the sum of the parts would almost certainly be worth more than the whole.