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Prosus shareholders are nervous

Group has undertaken not to sell any more Tencent shares until March 2024.
This is the first time since March 2018 Prosus, the single largest shareholder, has sold any Tencent shares. Image: Yan Cong, Bloomberg

News that Prosus was selling off another 2% of Tencent saw both Prosus and Naspers shares take a hit on Wednesday morning, indicating that investors were nervous about what the Prosus board might do with the cash injection of around $15 billion.

On Wednesday Prosus told shareholders it would use the proceeds of the sale “to increase its financial flexibility to invest in growth, plus for general corporate purposes”.

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Prosus chair Koos Bekker said: “Tencent is one of the world’s best growth enterprises. It has consistently delivered value since listing in 2004. Prosus’s commitment to Tencent remains steadfast. Through the sale of this small portion, Prosus intends to fund continued growth in our core business lines and emerging sectors, as well as allow for complementary acquisitions.”

Prosus has undertaken not to sell any more Tencent shares until March 2024.

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The slump in the Prosus and Naspers share prices indicates investors’ fear that nothing Prosus does with the money would compensate for the loss of part of the Tencent stake.

‘Makes sense’

Jean Pierre Verster of Protea Capital Management however said that in the context of the Prosus/Naspers share repurchase strategy, the sale of 191.9 million Tencent shares made sense.

“Prosus and Naspers have been buying back their own shares at hefty discounts, the sale of a part of the Tencent stake at a slight discount of 5.5% to 8.7% reflects a good allocation of capital.”

Verster added that the HK$575-595 expected for each Tencent share was not far off the all-time high reached earlier this year. But he did express apprehension about what Prosus might do with its latest cash pile.

“Last time Prosus did behave as though the proceeds were burning a hole in its pocket, fortunately they maintained capital discipline in their acquisitive bid.’

Not happy

Other investors were less supportive and slammed Prosus for pandering to shareholders who had taken positions in the group in the hope that management would reduce the discount at whatever long-term cost.

“Prosus and Naspers should be focused on managing the underlying businesses to generate strong sustainable free cash flows,” said one fund manager.

This is the first time since March 2018 that Prosus, the single largest shareholder, has sold any Tencent shares. At that stage Prosus committed to not selling any more Tencent shares until March 2021. The March 2018 sale generated $9.8 billion for Prosus, which managed to secure HK$405 per Tencent share.

After the March 2018 sale of a 2% stake, equivalent to 190 million Tencent shares, Prosus went on a global search for assets it hoped would help to reduce the hefty discount between its share price and the value of its Tencent holding. During its asset search Prosus made a $6.3 billion bid – ultimately unsuccessful – for UK food delivery group Just Eat. A rival bidder, Takeaway, prevailed in that transaction.

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One analyst remarked on Wednesday that the latest proceeds from the sale of the Tencent shares would be sufficient to make a bid for the combined Just Eat/Takeaway business.

The Tencent share price has recently been under pressure in part because of expectations that Prosus would be unloading another 2% after the March 2021 deadline. In addition, rising US Treasury yields and signs of a more aggressive stance by the Chinese government towards the country’s powerful technology companies have undermined investor sentiment.

Read: Tencent faces broad China clampdown, Naspers shares hit (Mar 12)

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The market has spoken load and clear. It simply doesn’t respect the leadership of Prosus to put the sale proceeds to work. Like it or not, Mr Bekker and his team are one trick ponies and the market has spoken about their ability with a discount to NAV that is colossal.

Every shareholder would be way better off if they held the Tencent share directly -the Naspers/Prosus teams being nothing more than widening discount value destroyers..

Sorry Mr Bekker but your legacy will be luck not skill-Mr Ma s is skill not luck!

Got lucky once. Won the lottery. Living off the proceeds ever since. Just a local boy at heart.

Could be a good move from an exchange rate point of view . Some calling rand / dollar at R12.50 this time next year ! We will see . Shares will retract losses in two or three days !

Based on what, I wonder? What could possibly go right in SA by 2022 to see the ZAR improve to that level? Unless the idea is that the USD will tank, which will hardly help the SA (or world) economy at all. It is, however, quite possible that my very negative view of SA is flawed. Please, Andrew, point me in the right direction, if you don’t mind.

If the US tanks it probably wouldn’t be good for us anyway… And we’d lose ground with the dollar against all the other globally NB currencies.

How do I put the ROTFL emojis on here?

Mmm…seems like the CEO & leadership will get some additional $$$ and shareholders got a punch in the stomach(again).
The share price dropped and who knows what else will drag it down even more

Never make promises about the future. China is after all a Communist country, Ten Cent is a Chinese government share, no matter what the pundits tell you, they just might marginalize their partners.

Completely agree with Sporteus….wouldn’t trust the Chinese for one second. They say one thing and do another – sidelining China was probably the only decent thing Trump did under his watch!

Couple of points there, but might I inform you the new #1 in the world is China
USA started sliding against China under Bill Clinton, Bush and Obama. Momentum was against Trump( but he tried to change the tide). Trump also took on big pharma & middle man and managed to get insulin down to $60 a month (if you are a diabetic you would understand). When Biden took over, you will pay anything from $320-560 a month.
I guess one major item to mention, Trump arrested and closed down more human and child traffic syndicates than Obama & Bush did in their terms combined

Call me stupid, but I do not understand the negativity here. Prosus is 60% higher than a year ago. What do I miss?

With you on this one, Auretha. I am stupid too. Koos Bekker et al did everything I expected of him as a shareholder (since the late 90’s, all dividends reinvested for almost 25 years). Every time Bekker and Rupert feature in the news most comments are invariably mostly negative. Very puzzling to me. As the Dutch say: hebben is hebben, krygen is de kunst. I don’t care if Ten Cent was a one trick pony, we are along for the ride.

I do not know Koos Bekker,but my logic tells me to gather enough money and to make the decision to buy the one trick pony, he must have done an awful lot of things right. And if it was so easy to buy the pony, why did all the clever critics not buy it? I am certain that Koos has created a lot of wealth for a lot of people with that one decision. My only regret is that I did not follow him 20 years ago.

This is not going to end.

Prosus/NAspers ‘other’ businesses are cash guzzlers.

cashs trapped… so they tapping into their investments….to pay for bobs salary

Best to buy Tencent directly!

Emperors with no clothes and squandering the family jewels.
Neither E-bay nor JustEat wanted Bob, yet free reign to sell off the golden goose to feed the part he’s got no idea what he’s doing.

Time to replace him.

End of comments.

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