BHP - Price disparity between ASX and LSE

[R Soul]

Why is the LSX - listed BHP stock at a discount to the ASX listed stock.

As of 2:25pm today:

ASX A$38.81
LSE GBP19.30

Now,
$1 A = 0.582604 GBP,

So, A$ 38.91 for one share on the ASX should relate to GBP 22.66 which implies the LSE listed stock trades at a 15% discount to the ASX listed stock.

 

[lemontree]

Mr Sainsbury said larger scale and greater diversity would make a company more relevant on a global scale.

He also warned that Australia risks losing relevance because of the limited large-cap opportunities in Australia and the implementation of the Rudd government’s resources super-profits tax.

Australia has only three companies with a value of greater than $US10 billion compared to seven in the UK, four in the USA, six in Canada and four in South Africa.

“The UK has the largest proportion of large miners which offers strong diversity,” the report said.

“We believe that this is partly the reason why the plc lines of BHP and Rio trade at such a discount to their Ltd lines as UK investors are spoilt for choice, but Australian investors need to own BHP and Rio.”

Source: http://www.theaustralian.com.au/business/city-beat/time-ripe-for-mining-consolidation-citi/story-fn4xq4cj-1225880906436

Theres one view on why it trades cheaper overseas.

 

[wayneL]

It cannot relate to exactly the same thing, otherwise there would be a massive arbitrage opportunity that would be closed by institutions faster than you could let out a decent fart.

I don't know the answer, but there must be some difference in the share.

 

[skyQuake]

It cannot relate to exactly the same thing, otherwise there would be a massive arbitrage opportunity that would be closed by institutions faster than you could let out a decent fart.

I don't know the answer, but there must be some difference in the share.

Its not arbable - BLT.L is not convertable to BHP.AX; I think its to do with the taxation structure in the UK and index weightings.

The RBA also has a paper on it.

 

[akkopower]

I dont know if I am right but it makes sense that the shares are not identical

say for example that 1 share of bhp.asx is equal to 0.1% if the bhp company and 1 share of bhp.lsx is equal to 0.15% of the total bhp company.

If they both had equal company weighting then u wold still expect slight differences due to issues associated with currency exchange and liquidity.

also note bp.nyse = $US31.85 and bp.lsx = 337gbp

 

[Bushman]

Here is the paper. Issue with arbitrage is the lack of 'fungibility' apparently.


http://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-06.pdf

Seems to remain a hard to explain anomaly.

Wayne - Winston Reid! Is there such a thing as an 'Order of New Zealand'?

 

[R Soul]

The reason why the price spread has not been
eliminated by investors is presumably related to the lack of fungibility (or
exchangeability) between the scrips.

BHP B Ltd and BHP PLC are technically different companies, although PLC share and LTD share has the same % of the merged BHP-billiton.

The paper suggests that over time the "twins" should become more equal in value. So long term investors in BHPBilliton should favour the PLC stck over the LTD stock.