Naspers swaps one Tencent headache for another
HONG KONG, Nov 17 (Reuters Breakingviews) - Naspers 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 . 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 as well as smaller holdings in Shanghai-based travel agent Trip.com <9961.HK> and fintech outfit Remitly Global , 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.