South32 Ltd (ASX: S32) has officially hit the ASX boards in what has become the biggest mining spin-off in almost a decade. The company, which instantly became Australia's third largest miner by market capitalisation, opened at the lower end of analysts' estimates at $2.13 (analysts had set a wide range of $2 to $3.50).
However, it still boasted a market capitalisation of $11.3 billion, according to the Fairfax press, putting it inside the nation's top 50 companies by market capitalisation. South32 was spun-out of its parent entity, BHP Billiton Limited (ASX: BHP), after investors overwhelmingly voted in favour of the transaction at the miner's recent Annual General Meeting.
Investors who held BHP Billiton's shares at close of business last Friday have been allocated one share in South32 for every BHP Billiton share held. Notably, BHP Billiton's shares were trading 6.9% lower following South32's official listing in what has been its biggest tumble since 2008.
While that partially reflects the fact that it is now billions of dollars' worth of assets lighter, some investors may also be selling after having been underwhelmed at South32's arguably weak debut.
What should investors do?
South32 shares are expected to remain volatile over the coming days with Australian fund managers expected to pile into the stock to satisfy their index-linked mandates, while many London-based investors are expected to sell out of the stock early.
While the stock's lacklustre debut today could deter some investors from buying, investors should actually look at it as an opportunity to stock up on a potentially rewarding company.
Although South32 is now home to most of BHP Billiton's 'unwanted' assets, it is believed that the demerger will unlock significant shareholder value by allowing management of both entities to pursue their own growth opportunities, whilst also focusing on cost-cutting initiatives and other operating efficiencies.
