BAT to seek listing reclassification
July 31, 2009
By Florence de Vries
British American Tobacco (BAT) will make further submissions to the National Treasury and the Reserve Bank to have its stock reclassified as a domestic asset.
Michael Prideaux, the director of corporate and regulatory affairs at BAT's head office in London, said yesterday that South Africa was one of the group's most important markets and reclassifying its stock would serve the interests of its shareholders in South Africa, which constitute 10 percent of the group shareholding.
Prideaux said the decision to apply for a new ruling followed the recent reclassification of JSE-listed paper producer Mondi as a domestic asset following a motivation to the Treasury and the Reserve Bank.
Like BAT, Mondi is a foreign company, but unlike the tobacco company, Mondi will now be included in the indices.
BAT, which was listed on the JSE as part of the restructuring of Remgro, has been classified as an "inward listing", which means investors are subject to exchange control restrictions.
These limitations cap the value of investment that local investors can make in BAT and means that the JSE cannot include the tobacco giant in any of its indices.
Prideaux said he did not want to predict the outcome of the group's submission but that it would "make hay while the sun shines".
Analysts said there were too many incongruities regarding the inward listing rules.
Grant Swanepoel, an analyst from Barnard Jacobs Mellet, said the Treasury needed to "look in both directions" and consider other companies such as SABMiller, BHP Billiton and Old Mutual in this category.
Swanepoel added that there were too many incongruities marking the listing, which would isolate BAT from other foreign listings, such as Anglo American, Dimension Data or Richemont. He said this had been done solely as a result of its timing in coming to the market. "It is unfair for BAT to be treated differently," Swanepoel said.
Mark Ansley, an equity analyst from Cadiz Asset Management, said a reclassification of BAT would give local fund managers greater choice without having to use their foreign exchange allowance.
Such a "move brings diversification benefits to local investors", he added.
Ansley said BAT's local operations contributed materially to the group's overall earnings. While volumes were down from last year, the group's market share rose in South Africa with the relaunched Peter Stuyvesant showing strong growth and achieving record market share, while Kent and Dunhill continued to perform well.
Prideaux said the South African arm of the business was trading fairly well but there was concern about the illicit trade of tobacco goods in the country. "We believe the local business is doing what it can," he said.
The company's first-half net income climbed 16 percent to £1.45 billion (R18.8bn), the London-based company said.
With additional reporting by Bloomberg
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