Amplats spin-off will net fiscus R18bn
• Some investors unhappy with undiluted exposure to platinum and prospect of CGT bill
The mooted unbundling of Anglo American Platinum (Amplats) by Anglo American as part of the group’s biggest shake-up in a generation will attract about $1bn (R18bn) in capital gains tax (CGT) — a figure some of the group’s shareholders are not happy with.
Coronation, which holds shares in Anglo, said it was concerned about friction costs and capital gains tax associated with the break-up of the company.
The fund manager, with more than R600bn in assets under management, said it was a “bit sceptical” about the value creation that the portfolio simplification blueprint announced by Anglo on Tuesday would bring to shareholders.
Part of Anglo’s plan is to divest or demerge from its platinum, nickel, steelmaking coal and diamond businesses in a move that it hopes will appease shareholders and fend off larger rival BHP, which has approached the company with an all-paper tie-up.
Anglo owns nearly 80% of Amplats, which it said would be hived off “in a responsible and orderly way”.
Nicholas Stein, a portfolio manager at Coronation, said Anglo was going to spend a lot of money cutting up different parts of the organisation, in the hope of getting a paper rerating on the piece that would be left.
“We think Amplats is worth less in our hands than in Anglo American’s hands.
“What made Amplats a higher-rated PGM counter than its peers was the fact that it didn’t stray to other commodities, and paid good dividends to the centre and that was extremely valuable. They could do that because they had the mother ship close at hand,” Stein said.
“Most people who get it [Amplats] will want to sell it and there will be a lot of selling pressure. Plus, you will have to incur capital gains tax. Various brokers are already quoting $1bn.
“I would probably make the same argument for De Beers. The outlook for diamonds is not that rosy and we are at quite a low point in the cycle.
“If you sell De Beers, will you realise the value? And if you unbundle it, then you just make the problem ours.”
In its bid BHP suggested the unbundling of Amplats and Kumba — with the latter still part of Anglo’s stable following its asset review.
Coronation last year disinvested from the platinum group metals (PGM) sector, casting doubt on the long-term prospects of an industry that employs nearly 200,000.
Stein said Coronation, which is one of Anglo’s top 10 shareholders, is not enthusiastic about owning a part of an unbundled Amplats. “We don’t own Amplats currently in its own right. The platinum exposure we do have is through our holding in Anglo, where we see it as an optionality. That indirect way to own it would get taken away from us in an unbundling.”
SA’s largest asset manager, Ninety One, agreed the Amplats unbundling would attract about $1bn in capital gains tax but was not overly worried about the figure. Ninety One is one of the top 10 shareholders in Anglo.
“The numbers I have seen is up to $1bn each for Amplats and Kumba unbundling. If you go to the BHP plan shareholders will pay more, but if you go with the Anglo plan it’s less.
“But in the grand scheme of things, if you think about how the stock market values a company, if you go from five times ebitda [earnings before interest, taxes, depreciation and amortisation] to six times ebitda, the billions of dollars that are added to your market cap is quite significant,” said Dawid Heyl, portfolio manager at Ninety One.
“The $1bn is a lot of money. The flip side is the benefit for the SA fiscus. Something like this [Anglo break-up] is an investment banker’s dream — they are going to … earn tidy sums.”
Heyl said an unbundled Amplats would hold its own against other PGM producers such as Sibanye and Implats.
The PGM sector has been battered by plunging prices. SA producers have responded by focusing on cost-saving measures and cutting capital budgets as margins become tighter.
Amplats in February outlined plans to cut 3,700 jobs in SA in a bid to reduce costs by R5bn. Sibanye-Stillwater has already let go of 2,600 workers at its PGM operations in SA, while Impala Platinum (Implats) in April said nearly 4,000 jobs are on the line across its operations.
Anglo has already rejected two bids from BHP, whose heart is particularly set on the group’s vast copper assets. It is not immediately clear if the “Big Australian” will come back with a third offer for Anglo; it has until May 22 to make a formal bid.
Under Anglo’s plan, the group will remain with three pillars: copper, high-grade iron ore and fertiliser.
“What Anglo has proposed is radical enough for them to have taken the initiative back from BHP,” Heyl said.
Stein said there was a lot to weigh in Anglo’s “self-help” plan. “You have to consider whether you take the certainty of price now from BHP and still get to own it on the other side versus giving the proposed asset simplification a chance.”
The general sentiment is that BHP is likely to come with a third and improved proposal before a regulatory deadline next week after its $43bn second bid was rejected on Monday.
Johan Barkhuysen, Stonehage Fleming head of equity management SA, said the BHP bid for Anglo was opportunistic and difficult to conclude based on the structure of the proposal.
He said Anglo had to finally respond to long-held investor concerns about its complex portfolio, stretching across many jurisdictions.
“It was inevitable that something would happen to Anglo’s structure, especially if your valuation is trading at a discount to your peer groups internationally,” Barkhuysen said.
“I was impressed by the boldness and speed at which Anglo reacted. These plans have been in the making for some time — I think the announcements this week were forced by BHP’s offer. I think for now they have evaded BHP’s clutches, but this is not to say BHP will come back knocking after Anglo cleans up its structure”
BHP shares, constitute 4.8% of Stonehage Fleming’s Equity Prescient Fund.