Activist investor requires Rio Tinto to desert major London itemizing

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.Rio Tinto ought to abandon its major London itemizing and unify its company construction in Australia, echoing a transfer by rival BHP, based on an activist investor that has taken a stake within the dual-listed miner.Palliser Capital, a UK-based fund, stated on Thursday that Rio’s present twin company construction was a barrier to its strategic plans, which made it troublesome to do main acquisitions and meant the London-listed firm was buying and selling at a $27bn low cost to its Australian entity.Unifying the entities and consolidating the first itemizing in Sydney, as rival BHP did two years in the past, would end result within the FTSE 100 dropping the world’s second-largest mining firm.The fund, which introduced its place on the Sohn Hong Kong funding convention on Thursday, is launching its marketing campaign amid intensifying consolidation within the mining sector, after London-listed Anglo American on Wednesday prolonged its talks with BHP over a blockbuster takeover bid.Palliser argues that Rio’s dual-listed construction prevents it from pursuing all-stock takeovers due to the corporate’s valuation hole and complicated company governance. Buyers are additionally in opposition to utilizing money to do massive offers due to the numerous financing concerned.“What we expect is the foundation reason behind the undervaluation is an especially clunky and outdated dual-listed company construction,” stated Palliser’s chief funding officer James Smith within the presentation, including he believed there was upside of “practically 40 per cent” [in Rio’s shares]. Palliser’s place — lower than 1 per cent of Rio’s shares — is the fund’s largest and value a couple of hundred million kilos, based on folks conversant in the matter. The fund first started investing in Rio greater than a yr in the past and had been involved with administration about its twin itemizing, the folks stated.In a press release to the Monetary Occasions, Smith added: “We’re supportive of Rio Tinto and its world-class portfolio of diversified mining belongings,” however stated the group’s “vital” progress potential was “hindered by a fancy and outdated [dual listing] construction”.Rio stated in a press release on Thursday that it frequently appears to be like at a spread of company and technique subjects that would optimise shareholder worth and ship for different stakeholders and it has a “coverage of open dialogue with all shareholders round these subjects”.Analysis analysts at Barclays famous in an early April report that the hole between Rio’s Australian and UK inventory had reached its widest since 2013, at 26.5 per cent.Collapsing the dual-listed construction “seems a low likelihood occasion to us”, the Barclays analysts wrote. “Nevertheless, we don’t see any insurmountable technical limitations to unification, there can be a number of advantages.”Smith, Palliser’s founder, was beforehand head of Elliott Administration’s Hong Kong office, the place he oversaw an analogous profitable marketing campaign round seven years in the past targeted on BHP.BHP introduced it was leaving leaving the FTSE 100 in 2021, although it retains a secondary London itemizing. Different corporations in recent times have additionally deserted twin listings together with Shell.At an trade convention in Miami this month, BHP chief government Mike Henry stated that the transfer had eliminated the low cost on its shares and made it “extra sensible” to pursue all-stock takeover offers, like its Anglo strategy.Nevertheless, Rio’s chief government Jakob Stausholm has beforehand performed down the opportunity of abandoning its major itemizing in London.“On my checklist of CEO agenda objects, there’s all the time quite a lot of issues I can’t hit. And the [dual-listed company] is the smallest concern to my thoughts,” he advised analysts in February. “It serves us properly to be a worldwide enterprise.”In its presentation, Palliser additionally argued {that a} transfer from Rio to Australia would unlock billions of {dollars} in tax credit that Australian buyers are eligible for, and with minimal prices related to the transfer.About 77 per cent of Rio’s share capital is held by buyers in its UK firm, in distinction to BHP, which was extra closely weighted in the direction of the Australian entity. However the overwhelming majority of Rio’s earnings are generated by its Australian entity, based on Palliser’s presentation. “That is an Australian enterprise,” Smith stated. Rio shares would nonetheless be traded in London underneath Palliser’s proposal, by way of a secondary itemizing. However the push comes at a troublesome time for the UK inventory market, which has been hit with quite a lot of corporations shifting their listings overseas to shut a valuation hole with opponents.Shares in Rio are roughly flat within the yr up to now, giving it a valuation together with debt topping £100bn. Extra reporting by William Sandlund in Hong Kong

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