China Consumer

Out of Africa

Naspers spins off Tencent proxy in Europe

Pony-Ma-w

The best bet ever made by Naspers

When Naspers elected to spin off its international internet assets into a new entity earlier this year, it decided to call the company Prosus: a derivation of the Latin word for ‘forwards’. South Africa’s largest listed company subsequently created one of Europe’s most valuable firms when Prosus debuted on Amsterdam’s Euronext with a €123.7 billion ($136.8 billion) market capitalisation on September 11.

Naspers’ management clearly wants equity investors to associate Prosus’s ‘forward’ branding with the returns it hopes to make from its portfolio of global technology companies. Yet so much about the wider media’s reaction has been focused on a world heading into reverse. For while the company itself epitomises globalisation, that concept has been somewhat in retreat, leading some to ask whether Prosus is best suited to an economic landscape where national and tribal identities are mattering more again.

For Chinese newspapers the answer is clear. They highlight how Prosus is effectively a proxy for their national champion, Tencent.

That’s because Naspers is Tencent’s largest individual shareholder with a 31.1% stake. That stake, in turn, accounts for just over 80% of Prosus’s net asset value (the other 20% of the NAV comes from an assortment of fast-growing but loss-making internet companies from Russia to Brazil).

In fact, the main reason for listing on Euronext is because Tencent’s soaring stock market valuation has caused problems for Naspers back home in South Africa. Prior to the spin-off, Naspers had ballooned to 24.4% of the index holding the leading South African blue chips (the FTSE/JSE Top 40), forcing some fund managers to cap their holdings due to concentration risk.

This was one of the reasons why a valuation gap of up to 30% had opened up between Tencent and its largest shareholder. Naspers’ solution was to carve out 27% of its equity into Prosus, offering it to existing shareholders on a one-for-one basis before listing by introduction in Amsterdam.

Chinese social media commentators hone in on the fact that Naspers has owned Tencent for 18 years and initially purchased a 46.5% stake in 2001 for around $30 million at a time when other funding sources were closed to the internet firm. More importantly, over the years it has resisted the temptation to exit what has turned out to be the most lucrative tech investment in history.

On the other side of the world, European newspapers highlighted that Prosus had become the continent’s largest tech company (at least for a few hours until its market value fell below Germany’s SAP again). The Financial Times headline read “Prosus debut creates European tech giant” while the UK’s Daily Telegraph went with “Meet Prosus: Europe’s new tech giant”.

Social media commentators took issue with both headlines, querying what’s European about a company that derives nearly all of its revenues from outside the continent. Others flagged Naspers heritage as a publishing company set up in 1915 as a mouthpiece for South Africa’s Afrikaners.

Indeed, in some ways Amsterdam was a natural listing venue for the company because it brings it full circle. Naspers was founded by descendents of the first Dutch settlers who landed on the Cape of Good Hope only a few decades after their compatriots at the Dutch East India Company (Verenigde Oostindische Compagnie) established the world’s first modern securities exchange in Amsterdam in 1602.

Prosus certainly gives current-day investors greater access to Tencent’s equity story and more broadly to China’s rise. That’s particularly the case for European retail investors, whose trading focus is often restricted to their home continent.

In one stroke, Prosus has entered Europe’s top 15 by market capitalisation. Top of the rankings currently are Nestle and Roche from Switzerland, followed by Royal Dutch Shell. Prosus joins the pack as a particularly unusual animal: its parent’s DNA is European and its scope is multinational, but if Prosus’s identity is defined by its biggest source of income then it is most definitely Chinese.

Indeed, another way of looking at the new firm is as a European dual-listing for Tencent.


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