BHP's Anglo plan risks R80bn flowing out of SA and a weakened rand: JP Morgan
A successful takeover of Anglo American under the arrangements BHP Group has offered could lead to outflows of $4.3 billion from South Africa, according to a JPMorgan Chase & Co. analysis.
The deal, proposed by BHP and rejected by Anglo, would involve Anglo distributing its holdings in its South African iron ore and platinum units to shareholders. That, according to JPMorgan’s South African mining analyst Catherine Cunningham, would lead to developed-market investor index funds selling the unbundled stocks, resulting in the outflow.
"There is now a materially higher probability that BHP will reach an agreed deal," she wrote in the May 23 note to clients."We see downside risk to the share prices of both Amplats and Kumba."According to her analysis, developed-market funds would sell $9.4 billion in stock and $5.1 billion would be bought by emerging-market investors, resulting in the net outflow. JPMorgan estimated the index fund holdings in Anglo American based on publicly available data.
Developed-market index funds would need to sell their shares as Johannesburg-listed stocks wouldn’t fit their investment mandate. Active investors are likely to want to limit their exposure to single-commodity and -country stocks. Kumba’s mines are all in South Africa while Anglo Platinum has one small operation in Zimbabwe, with the rest in South Africa.
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