Recent Letter to the Editor AFR

BHP buyback

Dear Sir,

The BHP buyback, with its streaming of franked dividends and the creation of capital losses for a fortunate few, exemplify how absurd the tax governance and therefore the management of Australia’s fiscal policy has become.

Further, the decision by the BHP board to construct a convoluted and discriminatory capital return strategy as opposed to a simple cash dividend to all shareholders needs an explanation.

The costs of the BHP structure will be high – probably millions – and shareholders are left to work out what to do and ponder whether they will benefit from the possible outcomes between participate or not participate.

BHP shareholders will recall the 2011 version of the BHP buyback at $38 per share. How poor that decision has been for shareholders ever since!

In my opinion, schemes like this should not be legal and in any case, directors need to decide if these schemes are really in the best interests of all shareholders. More so BHP which is a large resource company subjected to multiple cycles including commodity prices, currency, China growth, equity market risk and the current uncertainty as President Trump implodes the US budget.

Whilst BHP should be ready to buy back shares and they should only do so when they are clearly undervalued based on some assessment by them as to what is fair value. I suspect they have no idea of fair value as evidenced by their decision to buyback at a discount to a VWAP price rather than a set price. They did the same thing in 2011.

Meanwhile, Canberra is asleep at the wheel as our budget gets eaten alive by these contrived schemes. But they don’t worry because the average worker will still go to work, pay his tax for the rest of his working life and remain blindly ignorant.

John Abernethy
Clime Investment Management Limited