"JPMorgan says BHP plan risks $4.3 billion South Africa outflow"

" JPMorgan says BHP plan risks $4.3 billion South Africa outflow \r\n\r\nA successful takeover of Anglo American Plc 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.\r\n\r\nSuch an outflow, if a deal goes ahead, could weaken the rand, which has gained 4.4% against the dollar, the most of 16 major currencies tracked by Bloomberg, over the last five weeks.\r\n\r\nThe 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\u2019s South African mining analyst Catherine Cunningham, would lead to developed-market investor index funds selling the unbundled stocks, resulting in the outflow.\r\n\r\nWhile Anglo has spurned BHP\u2019s $49 billion bid, it has agreed to talk to the company, which must now make a firm offer by May 29. A successful deal could also affect the share prices of the units, Anglo American Platinum Ltd. and Kumba Iron Ore Ltd., Cunningham said.\r\n\r\n\u201cThere is now a materially higher probability that BHP will reach an agreed deal,\u201dshe wrote in the May 23 note to clients. \u201cWe see downside risk to the share prices of both Amplats and Kumba.\u201d\r\n\r\nCunningham didn\u2019t assess the potential impact on the rand.\r\n\r\nAccording 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.\r\n\r\n\u201cLocals will not sell anything, developed market index funds will sell every share they receive and DM active and others will sell 90% of what they receive,\u201d Cunningham estimated. \u201cEM active funds will buy 50% of what\u2019s for sale.\u201d\r\n\r\nAmplats, which has a market value of 192 billion rand ($10.5 billion), is nearly 80% owned by Anglo American. Kumba, which has a capitalization of 170 billion rand, is almost 70% held by Anglo American.\r\n\r\nDeveloped-market index funds would need to sell their shares as Johannesburg-listed stocks wouldn\u2019t fit their investment mandate. Active investors are likely to want to limit their exposure to single-commodity and -country stocks. Kumba\u2019s mines are all in South Africa while Anglo Platinum has one small operation in Zimbabwe, with the rest in South Africa.\r\n\r\nSpinning off the companies would also add $14.2 billion to the market capitalization of the MSCI South Africa index, or about 6%, Cunningham wrote.\r\n\r\nIn response to BHP\u2019s approach Anglo rushed out its own plan to streamline its business. That would include spinning off Anglo Platinum while retaining control of Kumba."

"JPMorgan says BHP plan risks $4.3 billion South Africa outflow"

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