BHP spin-off South32 makes modest debut in ASX

19 May 2015

South32, the new mining company spun-off from global mining giant BHP Billiton made a humble debut yesterday on the Australian Stock Exchange (ASX), in Australia's biggest new listing in 16 years.

Shares in South32 settled down at A$2.05 yesterday on ASX after making a A$2.13 start, at the lower end of analysts' forecast of A$2.00 to A$3.00 range. This gave the stock a market capitalisation of A$10.9 billion, about a third below the maximum anticipated value.

Soon after the admission ceremony at ASX, South 32 chief executive Graham Kerr said he was ''not unhappy'' but also ''not too focused'' on the lukewarm price.

''I didn't get too focused on the share price from day one. I think what we will focus on will be the things we can control - the safety, the volume, the cost, telling investors the story - and the investors can put the appropriate price on the stock.'' Kerr said.

Nevertheless, the stock surged 13 per cent to A$2.32 in today's trading. Parent BHP, which was down 7.3 per cent yesterday at A$30.13, went further down 1.7 per cent to A$29.62 today.

Further to a demerger plan announced last August, BHP, has spun-off its  non-core assets including aluminium, coal, manganese, nickel, silver, lead and zinc into South32, incurring upfront costs of A$921 million ($738 million). (See: BHP's $13-bn South32 spin-off to cost $738 million). 

Under the plan BHP shareholders received one South32 share for every BHP share held by them.

Perth-based South32, named after the latitude that joins its main assets in Australia and South Africa, is now the third-largest mining company on ASX after BHP and Rio Tinto.

The stock is also listed on the stock exchanges of Johannesburg and London and will trade as ''S32'' in all the three bourses.

South32 has 5.32 billion ordinary shares on issue.

In a statement issued yesterday on the commencement of trading Kerr said, ''We believe that our regional model will enable us to improve our productivity and performance in a sustainable way. We will aim to combine strong operational performance with financial discipline as we seek to increase shareholder value.''

Some analysts believe that, although the start was modest, it need not signal bad times to come and could be a precursor to better times ahead.

According to Macquarie Research, analysis of 35 demergers indicated that the spin-offs typically underperform the parent company in the first six months after listing, before eventually turning around.

''The short-term underperformance is soon reversed, with strong longer-term outperformance,'' the analysts said. ''After a year the child entities have typically rebounded to outperform the market.''

South32 is the biggest listing in ASX since financial services major AMP Ltd listed on the bourse in 1998.