Rio Tinto to return capital to shareholders

[Bouleversee]

http://riotinto.msgfocus.com/files/amf_ ... y-back.pdf

[monabri]

Got to be honest, don't fully understand all this but it looks as if only Aus shareholders will benefit...?

[Dod1010]

You who own Rio Tinto plc (the London quoted bit) are apparently getting an additional $1.9 billion allocated to existing funds allocated to buy backs so it is not just the Aus shareholders who will benefit. That is what the report says anyway.

Dod

[77ss]

Got to be honest, don't fully understand all this but it looks as if only Aus shareholders will benefit...?

As dod1010 says, plc holders get their whack too.

I never used to like share buy-backs (as opposed to 'specials'), but following Osborne's increase in the taxation of dividends things are a bit different - if you get (as I hope to) over a certain amount (£5K in the current tax year - reducing to £2K in 2018-9) outside tax shelters.

The commitment of $3.4bn to buying back plc shares by the end of 2018 should reduce the shares in issue by about 5.3%. I guess it should help the share price, and may enable a higher dividend per share, but it's not very tangible.

[Gengulphus]

Got to be honest, don't fully understand all this but it looks as if only Aus shareholders will benefit...?

The impression I get is that the 'off-market buy-back', which is only available for Rio Tinto Ltd shares (*) and only to shareholders resident in Australia and New Zealand, is basically a device to allow those shareholders to benefit from an idiosyncrasy of those countries' tax law. It's being done by a tender offer, i.e. an offer made directly by the company to the shareholders concerned asking them to say how many shares they're willing to sell and at what price. The prices they can name are at discounts to the average market price over the last week of the month-long period in which the offer is open, with the discounts that shareholders may name being between 8% and 14%, and they can also name a minimum price below which they're not prepared to sell even if the market price has fallen enough to that it would be within their discount.

I.e. in short, they're inviting those shareholders to sell shares to the company at less than what they could sell them for on the market - which makes it apparently an obviously unattractive offer that the shareholders concerned would be silly to accept! But the announcement says (with my bold):

"Participation in the Buy-Back is voluntary. For some shareholders, depending on their tax status, the after-tax return of participating in the Buy-Back may be greater than a sale of their shares on-market. The Buy-Back will have different tax consequences for different shareholders. Shareholders should seek their own professional advice (including tax advice) about the implications of participating in the Buy-Back in light of their particular circumstances."

So basically, it's an offer that small shareholders (**) should accept if it improves their tax position by more than the cost of the discount they choose, and not otherwise. As the quote follows a description of an Australian draft tax ruling on how it will be taxed and it's all in the context of the offer being made to shareholders in Australia and New Zealand, I presume that there must be some feature of Australian tax law (and presumably New Zealand tax law as well) that makes selling shares directly to the company produce a significant tax bill reduction for some shareholders compared with selling them on the market (don't ask me to explain what - about all I know about Australian tax law is that Australian companies say whether their dividends are 'franked' or not!).

What I am pretty certain of is that UK tax law does not distinguish between selling shares to the company and selling them on the market in any normal circumstances (***). So UK-based shareholders needn't worry that they're missing out on any benefit - they're merely not being offered the chance to make a clear mistake!

(*) Not the Rio Tinto plc shares we would normally buy in the UK, the two companies being the two separate-but-very-closely-cooperating parts of Rio Tinto's "dual listed company" structure.

(**) Large shareholders who want to sell a large number of shares might have an alternative justification, namely that they won't have a liquidity problem (i.e. selling so many that they drive the market price down significantly). But given the size of Rio Tinto, "large" means very large indeed!

(***) There might be highly unusual circumstances in which a company counted as a 'connected person' for the shareholder, which would change the CGT treatment. But I'm pretty certain that Rio Tinto's shares are held widely enough that that isn't the case for any of its shareholders...

Gengulphus

[Bouleversee]

The bit mentioned in Geng's post may be irrelevant to us UK investors but the $1.10c interim dividend certainly isn't. The difference between RIO and BKG is that they are massively increasing the div. as well as doing buybacks which ought to enhance the s.p. though bizarrely it has dropped slightly today. However, I haven't yet looked to see what the market is doing generally. It may have been spooked by bigger issues.

[Bouleversee]

P.S. You might like to reads what the FT says about it all.

https://www.ft.com/content/4c9a5222-775 ... a9d1bc9691

[tjh290633]

It always annoys me when buybacks are described as "returning money to shareholders". In fact they are using shareholders' money to buy shares from other shareholders. To my mind it is only a tender offer which allows a shareholder to decide whether or not he wishes to sell some or all of his shares, and so have money returned to him.

Far better to pay dividends at a higher level.

TJH

[Bouleversee]

TJH

I agree though I think it's just as annoying, if not more so, when they give us some of our money back in the form of a spec. div. and simultaneously reduce the number of our shares, which is a forced buyback without our consent or any control over what is paid. On the whole, I think I prefer what RIO is doing (so far as we are concerned; different for the Aussies) but we shall see.

[Lootman]

It always annoys me when buybacks are described as "returning money to shareholders". In fact they are using shareholders' money to buy shares from other shareholders. To my mind it is only a tender offer which allows a shareholder to decide whether or not he wishes to sell some or all of his shares, and so have money returned to him.

Far better to pay dividends at a higher level.

Depends. Dividends are a taxable event in the tax year in which they are paid out (as are tender offers). A buy back is not and the realisation of any resultant capital gain may be deferred, potentially indefinitely.

[Breelander]

You who own Rio Tinto plc (the London quoted bit) are apparently getting an additional $1.9 billion allocated to existing funds allocated to buy backs so it is not just the Aus shareholders who will benefit. That is what the report says anyway.

And confirmed in today's RNS...

Rio Tinto plc on-market buy-back
The portion of the Programme relating to the on-market buy-back of Rio Tinto plc shares will now total a maximum amount of US$1,925 million and will commence on 27 December 2017 and will be completed no later than 31 December 2018.

https://www.investegate.co.uk/rio-tinto ... 00022480W/