Naspers swaps one Tencent headache for another

HONG KONG, Nov 17 (Reuters Breakingviews) - Naspers (NPNJn.J) has a new Tencent (0700.HK) quandary. The South African group has long traded at a big discount to its stake in the Chinese tech giant, currently worth $100 billion. That shortfall has narrowed since it started selling shares to fund buybacks. A bigger factor, however, is Tencent's plunging value.
Boss Bob van Dijk has spent years trying to shrink the stubborn gap between the company's worth and the value of its Tencent stock, which it bought two decades ago for just $36 million. In 2019, Naspers spun out the Chinese investment, alongside other technology assets, into an Amsterdam-listed unit called Prosus (PRX.AS). That had limited success. The parent company and its subsidiary then unveiled a complex share swap with each other last year, which lowered the former’s economic stake in the latter without giving up control. In June, they launched an open-ended plan to gradually sell Tencent shares and use the proceeds to repurchase stock in both companies.
Since then, the discount has improved. As of Nov. 16, Naspers was worth 16% more than its now-43% economic stake in Prosus, a reversal from a 5% discount at the end of June. Meanwhile the gap between the Dutch company’s market capitalisation and the value of its assets, which it calculates to be worth $132 billion, has roughly halved over the same period to 7%.
The problem, however, is that Tencent stock has underperformed that of Naspers and Prosus. Though the Chinese group’s Hong Kong shares have rallied by 45% this month, they are still down by a third since the start of the year. Over the same period Naspers shares rose 6% while those of its Dutch subsidiary are down 19%.
Tencent's woes have weighed on Prosus, which derives roughly three-quarters of its total asset value from its 28% stake in the company. Its portfolio of other listed assets, which includes a $3.1 billion stake in German takeaway firm Delivery Hero (DHER.DE) as well as smaller holdings in Shanghai-based travel agent Trip.com (9961.HK) and fintech outfit Remitly Global (RELY.O), has gained 12% since the end of June.
Naspers has always insisted that it has no intention of selling out of Tencent. But even if the prized asset continues to be a drag, there are no easy exit options. At the current rate of selling roughly 1 million shares a day, it will take at least a decade to dispose of the entire stake. Naspers dismissed recent reports that it was in talks with a consortium led by state-backed Chinese conglomerate CITIC about a potential sale. Finding a buyer with $100 billion to spare looks a stretch. Besides, any deal would need Beijing's blessing as Tencent handles sensitive chat and payments through its ubiquitous WeChat app. For better or worse, Naspers is stuck with Tencent.
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Tencent on Nov. 16 reported revenue of 140 billion yuan ($19.8 billion) in the three months to end-September, a decrease of 2% from a year earlier. Operating profit in the quarter fell 3% to 51.6 billion yuan.
Technology investment firm Prosus and its South African parent Naspers on Nov. 1 rejected reports that they are in talks to sell their 28% stake in Tencent to a group of buyers led by Chinese state-backed CITIC.
“The Naspers Board and Prosus Board reiterate their continued confidence in Tencent's long term prospects and continue to believe that the share repurchase programme is in the best interests of Prosus, Naspers and their respective shareholders," they said in a statement.
Thomson Reuters
Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York where she focused on US-Iran relations, US-Myanmar relations and sustainability issues in Asia. She has also worked as a researcher at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.