Naspers moves to build European-based advantage

Largest listed company in Africa, is to relocate its most valuable assets including its majority stake in Tencent, in a new vehicle to be listed in Amsterdam

The Media 24 Ltd. office stands in Cape Town, South Africa, on Friday, Aug. 25, 2017. Naspers Ltd. has for years scoured the world looking for another early stage technology company that will eventualShow more

Cape Town//Naspers, the largest listed company in Africa, is to move its most valuable assets including its majority stake in Tencent, to Europe.

Naspers is a media and technology company headquartered in Cape Town, that now holds a diverse portfolio of global investments. Among these is a 31 per cent stake in Chinese firm Tencent, itself one of the world’s largest gaming, social media and technology companies.

Naspers’ stake is valued at around $134 billion and it is the single largest shareholder in the Shenzhen-based firm. However, Johannesburg-listed Naspers has a market capitalisation of just under $100bn.

This more than 30 per cent discount between Naspers and its Chinese investment has been a headache for the South African company for some time. Among the reasons for the price gap are the internal rules many global investment firms have, which may limit or even exclude putting money into riskier emerging markets such as South Africa, regardless of the value of the assets in question.

By moving its foreign assets such as the Tencent stake to the Euronext bourse in Amsterdam under a newly created company, international investors will have better access to Naspers’ investment in Tencent as the restrictions will not apply.

“The listing will present an appealing new opportunity for international tech investors to have access to our unique portfolio of international internet assets,” said Naspers CEO Bob van Dijk.

The yet to be named company will be the primary listing, while Naspers will remain on the Johannesburg Stock Exchange (JSE) as a secondary listing. For now, Naspers is referring to the upcoming listing as "Newco".

Newco will include assets such as Naspers’ controlling stakes in Indian online food-delivery business Swiggy and online travel site MakeMyTrip. It will also include the biggest online classifieds and property platform in Russia, Avito, and e-commerce business mail.ru.

Meanwhile, Tencent itself also has “hundreds of investments” of its own, says Wayne McCurrie, senior portfolio manager at FNB Wealth and Investments. However, investors tend to overlook the South African company's combined portfolios of assets, valuing Naspers merely on its enormous Tencent holding. “The value of these assets is not reflected in the shareprice," says Mr McCurrie.

Naspers’s growth into a multibillion-dollar tech company is a rare example of a newspaper publisher that managed to survive – and thrive – in the worldwide move from print to digital media. The company was founded almost 100 years ago, and spent much of the 20th century printing Afrikaans language newspapers, before moving into pay TV and eventually online media.

In January, the company bought out the Dubai-based online marketplace Dubizzle through its subsidiary OLX Group, for $190 million (Dh697.7m).

In 2001 Naspers invested $32 million in then Chinese start-up Tencent for a 46 per cent share. Today Naspers' holding has been reduced to about a third of Tencent, which is China’s second-largest listed company and has a market value of almost $450bn.

Naspers now has a diverse portfolio of media and tech assets of its own, but its fortunes tend to ebb and flow with Tencent's. Last year China's The People's Daily blasted Tencent for being harmful to children who, it said, were becoming addicted to the Tencent-owned fantasy role-playing mobile gaming hit Honour of Kings. The editorial tanked Tencent's share price 5 per cent in Hong Kong – and Naspers' followed suit in Johannesburg.

Analysts had for some time wanted Naspers to tackle its price sensitivity to Tencent, but the move to list in Europe caught most by surprise.

“This was a gangster move,” says Bright Khumalo, an analyst at Vestact Asset Management in Johannesburg. Most analysts had expected Naspers to continue with internal restructuring and spinning off non-core assets, such as when it recently spun off its African pay-TV unit MultiChoice that was listed separately on the Johannesburg Stock Exchange, at an initial valuation of about 42bn rand (Dh10.65bn).

The decision to list in Amsterdam was therefore unexpected - but also made sense, Mr Khumalo said.

“Amsterdam has favourable taxes for investors, and it's where most participants in the tech investment sector in Europe are. You want to be listed there.”

For South African shareholders the move is also being viewed as a win. Most investment portfolios include Naspers, and now the value of these holdings should increase.

Naspers is to hold 75 per cent of Newco, while the remaining 25 per cent will be offered to European shareholders.

Some, however, are uncertain whether the offshore listing will in fact benefit South African shareholders. Naspers accounted for around 20 per cent of the overall turnover of trade in listed companies on the JSE, Africa’s largest bourse by turnover.

Stockbroker David Shapiro took to Twitter to say the local exchange will lose substantial daily trade with the spinning off of assets to an offshore entity. “The JSE will suffer significantly, losing all the daily trade in Naspers. We’ll get the value flow through, but not the trade. Naspers makes up between 15 per cent and 20 per cent of our daily trade,” he said.

Over the years the JSE has helped create a number of global giants, such as Sasol, the world’s largest gas-to-liquids producer, beverage maker SABMiller and BHP the world’s second-largest mining company.

In time these companies have moved abroad and, in some cases, either merged or were bought up by rivals. For instance, SABMiller was acquired for $107bn in 2016 by AB InBev. Although SABMiller was rebranded and kept its listing on the JSE, trade in the counter has dwindled, Mr Shapiro says. Other South African shares that went abroad also took their daily trade with them.

The same is likely to happen to the JSE-listed Naspers, Mr Shapiro says. “It won’t be immediate. But over time trade in Naspers will migrate to Newco.”

However, JSE CEO Nicky Newton-King believes the restructuring will, in the long run, benefit both the exchange and shareholders. "Naspers is a South African success story and the JSE believes that this step is important in unlocking the unique market dynamics facing this group,” she said.

The offshoring of Naspers may offer local shareholders another benefit as well; some protection at least from future political interference. Racial tensions in the country and calls for nationalisation of land and businesses, especially those associated with "white monopoly capital", have grown louder in recent years.

Radical left-wing protagonists want companies seized and brought under state control. That is why, for some years now, large South African corporations ranging from retailers to mining companies have quietly expanded their overseas investments, while putting local investments on a low heat.

South Africans are also prohibited from holding offshore bank accounts or investments without approval from local regulators. Therefore, companies such as Naspers that own foreign assets and ringfence them from the political risk at home, provide shareholders with an additional layer of reassurance.

“Local investors will now also have a choice as to how to access the Naspers opportunity, which is positive for investment diversification and trading activity on the JSE,” says Ms Newton-King.

“We value the Naspers group as a client and look forward to continue serving them as they grow."