Rio Tinto faces pressure to leave London exchange

Activist investor Palliser Capital argues that switching its primary listing to Australia would boost Rio Tinto's shares by about 40%.

Rio Tinto (ASX, LON, NYSE: RIO) should switch its primary listing from the London stock market to Australia, a move that could boost the miner’s share price by “nearly 40%”, a UK-based activist investor said on Thursday. 

Palliser Capital, The fund, which oversees roughly $850 million in assets, said Rio Tinto’s dual corporate structure has made it more difficult for the world’s second largest miner’s to pursue all stock takeovers. It noted the miner’s London-listed entity is currently at a $27 billion discount to its Australian one, the Financial Times reported. 

Bringing together the entities and merging the main listing in Sydney, as rival BHP (ASX: BHP) did two years ago, would result in the FTSE 100, an index that tracks the 100 companies listed on the London Stock Exchange with the highest market capitalization, losing another big company.

Shell said in April it was considering to leave the LSE due to European investor apathy — if not outright hostility — toward fossil fuels.

With a market capitalization of £98 billion ($125bn), Rio Tinto is currently the ninth biggest company on the FTSE 100.

“What we think is the root cause of the undervaluation is an extremely clunky and outdated dual-listed corporate structure,” Palliser’s chief investment officer James Smith said at the Sohn Hong Kong investment conference on Thursday, according to FT. He added he believed there was upside of “nearly 40 per cent” in Rio Tinto’s shares.

Smith founded Palliser in early 2021 after leaving Elliott Investment Management, the activist hedge fund started by Paul Singer in 1977, where he had served as the Hong Kong chief. 

At Elliott, Smith led a successful campaign against BHP, urging the mining company to increase share buybacks and scrap its Anglo-Australian dual listing in 2017.

Nearly 77% of the share capital in Rio is held by investors in the company’s UK-based entity, , despite the large portion of its profits coming from Australia. Any change would require approval of both Plc ((UK-based) and Ltd (Australia-based) shareholders. 

This contrasts with BHP, which had a stronger weighting towards its Australian-based entity.

Rio Tinto has had a dual listing since December 1995 and the company has made it clear that dismantling the structure is not a top priority. During the February results call, chief executive Jakob Stausholm referred to the topic as “the least important issue in my opinion”, when asked if the miner would contemplate dismantling the DLC structure.

Stausholm acknowledged there were “marginal benefits” of doing so, including tidying up duplicate head office functions, as well as eliminating dual annual meetings and dual sets of primary listings fees.