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UK Equities
BHP slips on worries over spin-off
From the Financial Times of Mon, 15 Dec 2014 20:18:07 GMT

Will BHP Billiton’s spin-off plans survive the sell-off?

BHP hit another five-year low on Monday, down 3.7 per cent to £12.76. Since BHP first revealed plans to spin off its non-core assets in August, the stock has tumbled 38 per cent, cutting its market value by about £37bn.

The market slump means BHP should consider cancelling or delaying the float of South32, its spin-off company, to provide short-term earnings support for the wider group, said RBC Capital Markets.

Another option would be to use South32 as a debt offload vehicle, the broker told clients.

“In better times, this South32 spin-off seemed a good corporate clean-up or refocusing strategy,” said RBC. “Increasingly we think BHP should be asking, ‘what do we get out of this?’”

Oil and iron ore will account for 70 per cent of a slimmed-down BHP’s future earnings and both markets are facing potential structural change, so the break-up plan “places undue stress on the financials”, said RBC.

In contrast, South32 gets a diverse mix of commodities with about three-quarters of its earnings coming from manganese, coal and silver-related metals.

This broad mix means BHP could offload between $4bn and $5bn of net debt on to South32, rather than the $2bn it expects to be allocated.

A failed rally for oil and the rouble’s tumble led the wider market to its sixth straight decline. The FTSE 100 erased an early gain to lose 1.9 per cent, closing down 117.91 points to 6,182.72.

Russian steelmaker Evraz was down 8.3 per cent to 120.1p. Oil’s drop will force it to delay the spin-off of its North American pipe- and rail-making operations, which had been scheduled for mid December, according to reports.

Evraz had been expected to raise as much as $500m from the Nasdaq flotation, which it would have used to pay down debt.

Coca-Cola HBC hit its lowest since switching its main listing to London in April 2013, down 1.9 per cent to £12.32. Russia is estimated to provide about a quarter of the group’s profit.

Sky fell 4.4 per cent to 863p on uncertainty about the auction for English Premier League football rights, which is due to finish in February.

A survey by Liberum Securities found that if BT won the majority of Premier League rights, half of Sky Sports customers would switch to BT.

BT was up 0.2 per cent to 398p on news is favouring EE, the more expensive of its two options to buy a UK mobile network.

Pumpmaker Weir Group rallied 0.6 per cent to £17.10 on Deutsche Bank “buy” advice.

A sharp drop in demand from US shale prospectors is now priced into the stock, Deutsche argued. It also highlighted that the “already-bottomed” minerals division is still the biggest contributor to group earnings.

Drax tumbled a further 7.5 per cent to 470.4p following Friday’s government U-turn on subsidy levels for converting coal-fired power stations to biomass.

SocGen put a 400p target on Drax shares with the broker also cutting forecasts to reflect a fall in UK power prices since October.



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