Naspers investors see billions trapped by China success

JOHANNESBURG: It was the investment that transformed Naspers from a small-time South African newspaper publisher into Africa’s most valuable company and made its long-serving director and chairman Koos Bekker a billionaire.

Now, Naspers’ 33% stake in Chinese internet company Tencent is worth about US$100bil, or 20% more than Naspers itself. It dwarfs other parts of the business, including its loss-making e-commerce unit and African pay-TV.

Naspers has ploughed in around US$3.6bil since 2012 to drive growth in e-commerce platforms such as e-classifieds, online retail and auction sites and reduce its dependence on Tencent and pay-TV, which thrives in South Africa but faces headwinds elsewhere.

So far it has little to show for its investments and some investors say Bekker and chief executive Bob van Dijk must find new ways to close the discount between Naspers’ stock and Tencent shares.

“What is clear to the external observer is that developmental assets, largely e-commerce, are deteriorating in their group contribution relative to Tencent and are cash absorbing. Furthermore, it is difficult to see these assets reaching sizeable international scale,” said Mark Ingham, an analyst Ingham Analytics Founded in 1915, Naspers has transformed itself from an apartheid-era newspaper publisher into a 1.2 trillion rand (US$90bil) multinational with private equity-style investments.

But it owes much of that valuation to the US$33mil bet in 2001 to take a stake in Tencent, whose breakneck pace of growth has catapulted it into China’s biggest Internet company with a US$334bil market capitalisation. As Naspers’s stake in Tencent is worth more than Naspers itself, this suggests the other assets are not reflected in the valuation.

“We need to see those classifieds businesses actually in aggregate all swinging into profit, then you’ll see the discount narrowing,” said a fund manager at one of Naspers biggest shareholders, declining to be named because his firm does not want to make its views public.

Naspers said it is working hard to narrow the discount.

“Some discount to the Naspers sum-of-the parts value is unavoidable given our underlying investments in listed entities,” said Meloy Horn, head of investor relations.

“Our aim is to build great businesses besides Tencent ... we expect ... increased contributions from these fast growing e-commerce operations to be recognised by investors and through that process expect the discount to narrow over time.” Losses in Naspers’ e-commerce division - which houses assets that include OLX, the biggest classified sites in India and Brazil - have been mounting every year since 2012.

The e-commerce unit’s operating losses totalled nearly one billion rand in 2012, and have surged nearly six-fold to 5.6 billion rand in 2016. — Reuters