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According to an analysis by JPMorgan Chase, if BHP Group's proposed takeover of Anglo American is successful, it could lead to an outflow of $4.3 billion (R80 billion) from South Africa.
If a deal goes through, those outflows could weaken the rand, which has risen 4.4 percent against the dollar over the past five weeks, the biggest gain among 16 major currencies tracked by Bloomberg.
The deal, proposed by BHP and rejected by Anglo, would see Anglo distribute its stake in its South African iron ore and platinum units to shareholders, which JPMorgan South African mining analyst Catherine Cunningham said would prompt developed-market investor index funds to sell their spin-off shares, leading to outflows.
Anglo has rejected BHP's $49 billion takeover bid but has agreed to negotiate with the company and BHP has until May 29 to make a formal offer. Cunningham said a successful takeover could also have an impact on the share prices of Anglo American Platinum and Kumba Iron Ore.
“The likelihood of BHP reaching a deal has increased significantly,” she wrote in a client note on May 23. “We see downside risk to Amplats and Kumba share prices.”
Cunningham did not assess the potential impact on the rand.
Developed-market funds sold $9.4 billion worth of stocks and emerging-market investors bought $5.1 billion, resulting in net outflows, according to her analysis, which used publicly available data to estimate Anglo American index fund holdings.
“Domestics will not sell anything. Developed market index funds will sell all the shares they received, developed market active funds and others will sell 90% of the shares they received,” Cunningham estimates. “Emerging market active funds will buy 50% of the shares on offer.”
Amplats, which has a market capitalisation of R192 billion, is nearly 80% owned by Anglo American, while Kumba, which has capitalisation of R170 billion, is nearly 70% owned by Anglo American.
Developed market index funds will have to sell their holdings in Johannesburg-listed stocks as they do not fit their investment objectives. Active investors are likely to want to limit their exposure to single-commodity and single-country stocks. All of Kumba's mines are in South Africa, while Anglo Platinum has one small mine in Zimbabwe and the rest are in South Africa.
Cunningham wrote that spinning off the companies would add $14.2 billion to the market capitalization of the MSCI South Africa index, or about 6%.
In response to BHP's approach, Anglo quickly announced its own plans to streamline its operations, including spinning off Anglo Platinum while retaining a controlling stake in Kumba.