Naspers is taking a tentative step towards shrinking its Tencent gap. The South African group is valued at a hefty discount to its $120 billion stake in the Chinese internet giant. Floating its African TV unit should provide some relief to frustrated investors.
As financial headaches go, Naspers’ is a relatively nice one to have. Its decision to invest $36 million in Tencent in 2001 has proved one of the best technology bets of all time. As the Chinese company’s value has ballooned, though, its South African shareholder has struggled to keep up. The whole of Naspers is now worth about $91 billion – some $29 billion less than the market value of its Tencent shares.
The obvious solution would be to hand the Hong Kong-listed Tencent stock directly to Naspers shareholders. But the company led by CEO Bob van Dijk says this would hit them with an unacceptably large tax bill. Selling the shares in the market would also trigger tax payments and weigh on Tencent’s share price, which is already down by a third since March.
The alternative option is for Naspers to sell its other businesses. Spinning off MultiChoice is a logical start. The unit, which grew out of a TV firm co-founded by Naspers in 1986, is an African mainstay, beaming movies, soap operas and live European soccer to 13.5 million households across the continent.
Last year, MultiChoice generated Ebitda of $627 million. On a multiple of eight times, in line with emerging market peers like Dish TV India and Poland’s Cyfrowy Polsat , the business would have an enterprise value of $5 billion. Realising that value could help to reduce the discount.
The worry for Naspers shareholders is that the company is still planning to spend much of the almost $10 billion it raised by selling a 2% stake in Tencent in March on new e-commerce ventures. These collectively lost $615 million last year.
One option would be to spin off these businesses as well, leaving Naspers as a holding company which just owns Tencent shares. That’s effectively the approach taken by Yahoo, which sold its operating businesses and renamed itself Altaba to warehouse its stake in Chinese e-commerce giant Alibaba . Naspers has a few more steps to take before it arrives at the same conclusion.
– Naspers said on September 17 it planned to spin off and list separately its pay-TV unit with the aim of narrowing a discount between its market value and the value of its stake in Chinese technology giant Tencent.
– The South African company said it expected the business, to be named MultiChoice Group, will list on the Johannesburg Stock Exchange in the first half of 2019.
– Naspers is valued at a steep discount to the market value of its 31.2% stake in Tencent.
– Naspers said on March 23 it had raised $9.8 billion from the sale of a 2% stake in Tencent to re-invest in other internet ventures.
– Naspers shares were down 2% at R3 140 by 08:50 GMT on September 18.
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.