Tencent's Biggest Shareholder Looks to Fix Valuation Snag
By Alexandra Wexler
JOHANNESBURG -- Naspers Ltd., Africa's most-valuable listed
company, is taking another swipe at bridging a $100 billion
valuation gap between its market capitalization and the value of
its stake in Tencent Holdings Ltd., long a headache for its
Naspers is offering holders of ordinary shares the opportunity
to swap their stock for newly issued shares of its Amsterdam-listed
subsidiary, Prosus NV, which is the largest shareholder in Tencent.
The Chinese internet giant has a market value of about $739
Naspers and Prosus Chief Executive Bob van Dijk estimates that
the move could create immediate value of about $11 billion for
Naspers has been trying to narrow the gap since 2019, when it
created Prosus to hold its international assets -- the stake in
Tencent, along with investments in tech companies such as Russian
social-media operator Mail.ru Group Ltd., German food-delivery
business Delivery Hero and U.S. online marketplace Letgo.
Prosus's 29% stake in Tencent is worth about $214 billion, over
$100 billion more than the market value of Naspers, despite the
company's other profitable businesses in areas like online
classifieds, payments and retail. That has presented Naspers
executives with the riddle of determining how to unlock value for
shareholders without cashing out on one of the world's most
successful tech companies.
"At the core of it, it isn't complicated: As a Naspers
shareholder, you can now exchange Naspers shares for Prosus
shares," Basil Sgourdos, chief financial officer of Naspers and
Prosus, said in an interview. "As a result, you increase value
because Prosus trades at a lower discount to Naspers."
The major reason that the valuation gap is wider for Naspers
than for Prosus is the size of Naspers on the Johannesburg Stock
Exchange, Mr. Sgourdos said. Naspers, which now comprises more than
23% of the benchmark JSE SWIX Index, has become a constraint for
local index-tracking funds, which can't hold too much of a single
The problem had become more acute as the gap widened during the
past year, when the coronavirus-induced rally in tech stocks pumped
up valuations of Tencent. While many of the companies listed on the
exchange shrunk during the pandemic, Naspers shares were boosted by
Tencent's gains. That means that when Naspers stock goes up, many
South African investors need to sell, which can widen the discount
of Naspers relative to Tencent.
Analysts say this latest move is progress, but not a
"Management are taking steps in the right direction to address
the discount by reducing the size and weighting of Naspers in the
South African indices," said Neelash Hansjee, portfolio manager at
Old Mutual Equities in Cape Town. "This is a big deal despite the
remaining complexity of the structure."
According to Mr. Sgourdos, the share swap should reduce the size
of Naspers on the JSE to about 14%, relieving some of the pressure
to sell the company's shares when they rise closer toward the value
"This is a very significant and sustainable move that we're
making," Mr. Sgourdos said, adding that it frees up executives'
time to focus on growing the businesses rather than solving the
structural issue of the valuation gap.
Executives say the proposed transaction, which is expected to
more than double the Prosus free float to 60%, is also good news
for Prosus shareholders: The inflow of cash from index-tracking
funds is expected to propel the company to a top 20 spot on the
Euro Stoxx 50 Index.
Prosus will acquire up to a maximum of 45.4% of the issued
Naspers ordinary shares, which, together with shares already held,
will give it an economic interest of no more than 49.5%, the
companies said. If the offer is taken up in full by Naspers
shareholders, Naspers's holding in Prosus will be reduced to 57.2%
from 73.2%. The offer is expected to be implemented in the third
quarter of 2021.
Naspers originally paid $34 million for a third of Tencent in
2001, years before the operator of the WeChat messaging app became
China's most-valuable publicly listed company and the world's
largest videogame company by revenue.
Write to Alexandra Wexler at email@example.com
(END) Dow Jones Newswires
May 12, 2021 09:15 ET (13:15 GMT)
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