BHP has been in the news over the past couple of months, as an activist shareholder Elliott Management seeks to convince the company that it should restructure to unlock shareholder value.
As our lead story explains, one of the issues is that BHP has more than $12 billion of credits in its franking account. Elliott believes that a change from a dual-listed company structure to a unified structure would allow the company to release those franking credits more efficiently.
As that fight is played out over the next few months, shareholders may be prompted to look at large franking account balances in other companies and call for similar action.
According to Macquarie Data Services, BHP has $12.7 billion in its franking account, Rio Tinto has $6.8 billion, Woodside Petroleum has $2.6 billion, Woolworths has $2.3 billion and Westpac has $911 million.
Looked at on the basis of franking credits per share, Rio Tinto has the highest proportion, which Macquarie estimates to be $3.80 per share.
Woodside Petroleum has franking credits worth $3.10 a share, Caltex Australia $2.90 a share, Flight Centre $2.60 a share and BHP $2.40 a share.
And looked at as a percentage of market capitalisation, the credits in Salmat’s franking account are worth more than 40 per cent of the company’s market cap.
The Reject Shop’s franking credits are equivalent to around 40 per cent of its market cap, New Hope Corp’s to 35 per cent, Ten Network’s to 30 per cent and SMS Management’s to 28 per cent.
Companies accrue franking credits as they pay their corporate tax. The credits are held in a franking account and can only be released when they are attached to dividends.
While the credits are in the franking account they provide no value to the company or its shareholders. They are only of value when they are distributed to shareholders, when they become a credit for the tax already paid by the company.
Shareholders of companies with large franking account balances are entitled to know how those companies intend to release that value to shareholders. Maybe BHP will not be the only company with a fight on its hands over franking credits.