Naspers “put” tackles one of its Tencent problems

The Naspers logo is pictured on a smartphone in front of a stock chart displayed in this illustration taken December 4, 2021. REUTERS/Dado Ruvic/Illustration

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LONDON, June 27 (Reuters Breakingviews) – Naspers (NPNJn.J) has finally understood the value of simplicity. The South African company’s main asset is a 29% stake in Chinese internet giant Tencent (0700.HK), which is currently worth $133 billion. But Naspers has always traded at a steep discount to that stake, while tying itself in increasingly complicated knots to close the gap. A pledge on Monday to slowly sell Tencent shares and return the money to shareholders has the merit of being both intelligible and reassuring.

The 16% rise in Johannesburg-listed shares of Naspers on Monday morning will come as a relief to chief executive Bob van Dijk. To date, the Dutchman’s efforts to narrow the gap between the market value of Naspers and that of its underlying assets have mostly benefited corporate lawyers and financiers rather than shareholders. Despite the split of an Amsterdam-listed subsidiary, Prosus (PRX.AS), in 2019, the gap has sometimes widened to 60% or more.

The last plan helps in two ways. First, the open-ended program to sell Tencent shares in the market and use the proceeds to buy back Naspers and Prosus shares effectively creates a put option for investors.

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Second, van Dijk sends a clear signal that the company’s Tencent wealth will be returned to shareholders, not wasted on a high-risk internet startup. It was more than a theoretical risk: Prosus recently delisted its 28% stake in VKontakte, the Russian equivalent of Facebook.

The latest move does nothing to address the other factors weighing on Naspers’ valuation. The company’s clumsy governance structure, particularly the high-voting shares that kick in as soon as it or Prosus seem remotely vulnerable to a takeover, remains in place. Naspers also remains vulnerable to fluctuations in the South African currency and must pay capital gains tax on its investment in Tencent.

The company will long remain a major shareholder of Tencent. To avoid weighing on the Chinese company’s share price, Naspers and Prosus say they will only sell up to 5% of average daily revenue, or at most about 1 million shares per day. . At this rate, it would take until 2033 to dispose of all the shares. And keeping its wording vague – redemptions will last as long as the discount remains “high” – van Dijk has an opportunity to slow the pace if the gap closes as expected. There is beauty in simplicity after all.

Follow @edwardcropley on Twitter

(The author is a Reuters Breakingviews columnist. The views expressed are his own.)

BACKGROUND NEWS

The South African companies Naspers and Prosus, listed in Amsterdam, announced on June 27 an indefinite program to buy back their shares, financed by the gradual sale of their stake in the Chinese internet giant Tencent.

Prosus, 73% owned by Naspers, has a 28.9% stake in Tencent. Historically, Naspers and Prosus have traded at a significant discount to the value of Tencent’s stake.

The pair said Tencent stock sales would likely be no more than 3% to 5% of the average daily trading volume of the Chinese company’s stock. The program would remain in place as long as the discount is at “high levels”.

Separately, the two companies said they raised $3.7 billion from the sale of their stake in Chinese e-commerce company JD.com.

Prosus shares were up 10.4% at 58.62 euros on June 27 at 07:15 GMT. In Johannesburg, Naspers shares were up 13% to 2,165 rand. Tencent shares closed down 1.6% at HK$378.2.

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Editing by Peter Thal Larsen and Streisand Neto

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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