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Naspers’ Tencent spinoff demands more of the same

Prosus instantly becomes the third-largest listed company in Netherlands.
Naspers chief executive officer Bob van Dijk in Amsterdam, Netherlands. Image: Yuriko Nakao, Bloomberg

Naspers boss Bob van Dijk should be a happy man. The creation of Prosus, the South African group’s e-commerce vehicle which listed in Amsterdam on Wednesday, has dramatically narrowed a hefty long-term discount to its component parts, including a roughly $130 billion stake in Chinese web giant Tencent . Yet a big value shortfall persists for Naspers itself. Offloading more of Prosus might help.

Read: Prosus lists at R1 238 a share, Naspers shares fall more than 30%

Even ignoring all of Naspers’ stakes except Tencent, the historic valuation gap has at times reached almost 50%. Tackling it has been van Dijk’s top priority since taking over in 2014. An investment in the Chinese group back in 2001 was one of the most successful punts in corporate history and made Naspers South Africa’s biggest company. Yet it left van Dijk with a headache. Essentially, Naspers became too big for the Johannesburg Stock Exchange, worsening its trading discount to the value of its assets.

Prosus instantly became the Amsterdam bourse’s third-largest company after Royal Dutch Shell and Unilever. And its $139 billion market cap on Wednesday morning comfortably exceeds the worth of its 31% stake in Tencent. It’s still nearly 15% less than Prosus’ $160 billion or so of net asset value. As well as Tencent, that includes stakes in listed internet ventures like and Delivery Hero, $6 billion of net cash and unlisted businesses Morgan Stanley analysts reckon are worth $17 billion. But that’s a more acceptable investment-company discount than previously applied to Naspers.

So far, so good for van Dijk. Things look less rosy for Naspers, though. In a sense the problem it had owning a third of Tencent is continuing with its 75% stake in Prosus, now worth $104 billion. After Wednesday’s rejig, Naspers’ market value levelled out at around $70 billion, a nearly 35% discount – presumably for the same reasons that existed before.

That points to van Dijk spinning off more than the 25% of Prosus he already handed to his shareholders. Ultimately, he might even scrap Naspers’ right to retain control and float the whole lot. He would have to square such plans with the South African taxman and local investors. But at least for now, Prosus has shown him how to close the valuation gap.

Context news

-South African internet firm Naspers listed its international e-commerce interests on Amsterdam’s Euronext exchange on September 11, its latest attempt to reduce its hefty valuation discount to its constituent parts.

– The new company, Prosus, includes Naspers’ 31% stake in Chinese Internet giant Tencent Holdings, currently worth around $130 billion. Naspers spun off around 25% of Prosus to its shareholders, and is retaining roughly 75% ownership.

– Prosus shares soared to 77.40 euros by 0805 GMT, from a reference price of 58.70 euros, valuing the company at 126 billion euros ($139 billion). Shares in Naspers fell 32.6% to 2,359.96 rand following the spinoff, valuing the group at $69.6 billion.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.


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