TCEHY Tencent Holdings Ltd (PK)

Africa's most valuable company looks to unlock the value in its Tencent stake

By Alexandra Wexler 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 30, 2019).

JOHANNESBURG -- Africa's most valuable company said Wednesday it will move forward with plans to list its huge internet assets in Amsterdam, a bid to reduce the discount Naspers Ltd.'s shares trade at relative to the value of its $122 billion stake in Chinese internet giant Tencent Holdings Ltd.

The listing, scheduled for July 17, is at the early end of the range the media and internet company had considered and would instantly create a rare, large tech asset listed in Europe. It would be the third-largest company on the Euronext Amsterdam exchange and will hold Naspers's Tencent stake, as well as holdings in Russian social-media operator Mail.ru Group Ltd. and U.S. online marketplace Letgo, among others. Naspers had earlier said the listing would happen in the second half of the year.

Investors reacted positively to the plan, with Naspers shares rising 4.1% on the Johannesburg Stock Exchange. It is unclear, however, whether the listing will successfully resolve the discount. Investors can gain direct access to Tencent shares through its Hong Kong listing.

With a market value around $94 billion, Naspers trades at a discount to the value of its 31.2% stake in Tencent despite having additional profitable businesses, such as its online classifieds segment.

Analysts attribute part of the discount to a dividend-withholding tax that would kick in should Naspers ever sell its stake in Tencent and distribute the proceeds to investors.

Naspers also says that many institutional investors in South Africa have been forced to sell their shares in the company as it grew because of rules limiting how much they can invest in a single stock.

Naspers executives hope the new company, which remains unnamed and is referred to as "NewCo," will reduce that markdown. NewCo will have a book value of around $140 billion, according to executives.

Much of the company's growth in recent years can be attributed to the rise in value of its stake in Tencent, best known in China for its WeChat messaging app. Naspers paid $34 million for its original stake in 2001 and Tencent is now one of the world's most valuable companies. Naspers sold 2% of Tencent last year, netting a nearly $10 billion windfall.

Naspers on Wednesday said it would retain at least 73% of the newly listed tech giant in Amsterdam, with the remaining shares distributed among its existing shareholders.

Individual South African investors -- not funds -- will still have to choose whether to pay an accelerated, or brought-forward, capital-gains tax to get shares of the separately listed tech assets or to instead receive additional Naspers shares on the Johannesburg Stock Exchange.

Naspers has 61 million shares available for investors who don't want shares of the new company, but Chief Financial Officer Basil Sgourdos doesn't expect that too many investors will opt out of the new company.

"We are quite confident the number will come in way below that," he said in an interview with The Wall Street Journal.

The listing also is expected to reduce the outsize weighting of Naspers on the Johannesburg Stock Exchange -- the company currently makes up about 25% of the JSE SWIX index -- allowing investors more freedom to load up on the stock without having to worry about being forced to sell down shares to reduce exposure as the company's stock price rises, due to rules limiting how much they can invest in a single company.

"That puts the share price under pressure and drives the discount," Mr. Sgourdos said. "By lifting and shifting up to 27% of our stock into NewCo, that provides some relief."

Naspers expects the listing of NewCo in Amsterdam to attract more than $2 billion of passive capital thanks to its expected inclusion in a number of leading indexes.

One thing investors are watching is whether Naspers will eventually sell down more of its NewCo holdings into the Amsterdam listing, creating a larger free float.

"Ultimately, the more shares that they can list on the Euronext, the more liquidity it will attract," said Philip Short, an analyst at Old Mutual Equities in Cape Town, South Africa.

Mr. Sgourdos said Naspers could decide at some point to sell more shares into the Amsterdam vehicle "to free up cash for other things," but that the focus for the moment was finalizing the listing. He added, "We would have to be very conscious" of the discount investors applied to its shares versus the underlying stakes before making that decision.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

May 30, 2019 02:47 ET (06:47 GMT)

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