Billiton will put buyback into a trust

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BILLITON YESTERDAY unveiled an innovative plan which allows the South African mining group to buy back shares and hold them in trust, allowing it to reissue them at a later date.

The scheme is a breakthrough for a London-listed company. Until now UK companies have had to cancel any shares they bought back.

The move gives Billiton the flexibility to gear up its balance sheet in the short term without preventing the company from using its shares to fund acquisitions in the future.

"This is not a blunderbuss approach. It is more like a rifle shot," said Billiton's chief executive, Brian Gilbertson.

The share buyback scheme is likely to generate substantial interest with British companies, who have been searching for a flexible way of buying back and reissuing shares in order to maintain an efficient balance sheet. In the US, where companies are allowed to hold their shares in treasury, firms buy and sell their own shares on a rolling basis.

The move came as Billiton launched a bid to buy out the 47.41 per cent of QNI, the Australian mining group, that it does not already own. The offer values the minority shareholding at A$373m (pounds 133m).

Billiton also reported a 44 per cent increase in pre-exceptional profits to $335m (pounds 200m) in the year to June, its first as a separately listed company. Turnover rose by 4 per cent to $6.06bn.

Billiton's shares have had a torrid time since the company was spun off from Gencor, the South African gold mining group, and floated on the London Stock Exchange last summer. The group has been hit by the downturn in global commodity prices prompted by the Asian crisis. Yesterday, the shares closed up 4.5p at 126.5p.

The company, which has net cash of $1bn on its balance sheet, has been under pressure to use the cash for acquisitions or return it to shareholders. But Billiton was reluctant to carry out a conventional share buy-back because it would have had to cancel the shares and then reissue them through a rights issue if it subsequently found a use for the cash. A share buyback would also have incurred a large tax liability.

Under the complex new scheme, Billiton uses a Dutch subsidiary to buy the shares, which are then placed in trust. When the time comes to reissue the shares, they are sold directly to fund managers.

"If we buy now and the share price goes up, Billiton makes a profit," said Chris Norval, Billiton's corporate finance manager and the man who devised the scheme. "But we don't want people to think we are taking a punt on our share price. It is to facilitate a transaction."

Mr Gilbertson said the company was constantly examining potential acquisitions but had not yet identified any suitable targets. "The market expects us to do something big and sexy. But with the projects we've looked at so far the time has not been right," he said.

The plan will be put to shareholders for approval at Billiton's annual meeting in October, after which it will be free to buy back shares.

Investment, page 17