Anglo American shares hit six-year high
Anglo American (AAL) £19.66
Gain to date: 19%
Original entry point: Buy at £16.52, 12 July 2018
Shares in Anglo American (AAL) have hit a six-year high off the back of a rally in iron ore prices and a deal involving one of its largest shareholders.
Vedanta has paid $200m for a stake in Anglo from its parent company Volcan, a vehicle linked to Indian billionaire Anil Agarwal.
Volcan bought a near-20% stake in Anglo two years ago, funded by issuing exchangeable bonds which mature in 2020. That led to speculation that Volcan would try and buy part of Anglo such as its South African operations.
Volcan would need to raise approximately $6bn to convert the bonds into equity at the current price, but it is already highly leveraged.
UBS analyst Myles Allsop says Agarwal’s intentions remain unclear. ‘It is possible the move is to alleviate Volcan’s balance sheet pressures, rather to prepare for conversion,’ he says.
‘The Anglo share price is likely to be supported if Volcan converts the bond into equity (as the hedge funds that bought the exchangeable would have to buy 17% of the shares in the market); the share price may, however, be negatively impacted if Volcan allows the bond to mature and returns the shares to the hedge funds.’
Anglo’s shares are worth owning with or without any corporate action from Volcan. Hold on to the stock.