Chinese regulation might trim holding, which contributes 40% of earnings.

JOHANNESBURG - China giveth and China taketh away. When Naspers (JSE:NPN) entered the Chinese market in 2001, many outlined the infinite opportunities that await, however with the opportunities comes the threat of increased regulation.

Naspers shareholding in Hong Kong based Tencent might have to be reduced, this after sweeping new regulations to the online payment industry could force leading Chinese online companies to restructure their shareholdings. According to an FT report, Beijing said "it would place restrictions on payment providers with foreign investors".

Naspers which holds a 35.2% stake in Tencent, could be forced to sell some of its equity in the company as China looks to limit the growing influence of foreign companies in its online payment sector.

Tencent contributes 40% of Naspers core earnings and is just over 70% of its market capitalisation. Tencent market cap is HK$229bn, about R220bn. Naspers is in a closed period and releases its results on June 29.

Asked what impact these changes will have on Naspers, Naspers head of investor relations Meloy Horn told Moneyweb "we are investigating the situation ourselves and do not have a comment at this stage."

Tencent   founded in November 1998 , has in its 12 year history  become the largest and most used internet service portal, through QQ.com, QQ games and PaiPai.com .Tencent's communications and information-sharing services include , QQ Instant messenger, QQ mail and its search engine SOSO, amongst others.

If China presses through with its proposal, PaiPai.com, which is a small part of Tencent's overall revenue, would need to be listed as a separate entity. If that is not possible Naspers might be forced to sell some of its shares, which as an analyst speaking on condition of anonymity said "wouldn't be a bad thing given that they'd be selling at market value. Paipai.com has around 25% market share. An analyst covering Naspers says "rumor is they [China] want the restrictions on payment platforms in order to grow wholly owned Chinese payment companies."

The Johannesburg based analyst said " this means companies with foreign shareholders are not immune to harsh regulatory conditions, in fact until Tencent responds on how it plans to deal with these new regulations it certainly raises the regulatory risk when it comes to Tencent and indirectly Naspers".

Our other analyst was more sceptical saying "this move goes against China becoming more investor friendly, granted they wouldn't want wholesale foreign ownership of some of its strategic sectors but the 35% Naspers sits at is a very comfortable level".

Write to Lindo Xulu: lindo@moneyweb.co.za

*This journalist owns shares in Naspers

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