Naspers cut in Tencent stake will raise R125bn

Group to sell up to 190-million shares Funds could be used to pursue growth opportunities

Naspers will, for the first time, sell down its stake in Tencent, the crown jewel of its portfolio, in a move analysts said could signal a new investment.

The group said on Thursday it would sell up to 190-million Tencent shares to institutional investors, thereby reducing its interest from 33.2% to 31.2%.

That 2% stake was worth about $10.6bn (R125bn) on Thursday, close to the market capitalisation of Nedbank.

Naspers’s investment in the Chinese internet giant, which was made in 2001, is often hailed as one of the world’s most successful technology bets. It paid just $31m for its initial 47% stake — its holding was later diluted. But the Cape Town-based group has been under pressure in recent months to find ways to narrow its hefty discount to Tencent, with some analysts calling for a complete unbundling of the asset to shareholders.

The news that Naspers would sell down its stake came just a day after Tencent reported that although profits had doubled in the three months to end-December, revenue grew

slower than expected, at 51% year on year. That led to a 5% decline in Tencent’s share price in Hong Kong on Thursday, while Naspers ultimately closed 4.6% down at R3,300.

Naspers CEO Bob van Dijk said the proceeds of the share sale would be used to bolster the group’s balance sheet and for investments in its classifieds, online food delivery and fintech businesses. The funds could also be used “to pursue other exciting growth opportunities when they arise”.

The group said it would not sell any more Tencent shares for at least three years.

Naspers chairman Koos Bekker said while Tencent “is one of the very best growth enterprises in any industry in the world”, Naspers wanted to fund the growth of some of its core business segments.

“We want to consolidate some market positions, accelerate growth and bring a few businesses to self-funding status faster with additional support,” Bekker said.

The share sale, equal to 6% of Naspers’s Tencent stake, would probably reduce Naspers’s discount to net asset value between R30 and R100 a share, said Petri Redelinghuys, founder of stockbroker Herenya Capital Advisors. Redelinghuys said the partial sale suggested that Naspers was eyeing a deal or wanted to pump more cash into one of its existing businesses.

“It doesn’t feel like they’re trying to dump it [the entire Tencent stake], it just feels like they’re trying to free up cash for something.”

Shares in Tencent were likely to come under pressure amid the sale process, which could have a knock-on effect on Naspers, he said.

Olwethu Notshe, portfolio manager at Sentio Capital Management, said there were still a number of factors weighing on Naspers’s net asset value relative to its Tencent stake.

The fact that Naspers held its Tencent shares through a variable interest entity meant a discount was inevitable, while “the market is also concerned about management’s ability to deploy capital in a very accretive way. The third reason is the dual-class share structure, and the fact that you get consistently diluted in the N-share class.”

Given that management had a mediocre track record when it came to deploying cash, Notshe said, “we’d much prefer that they did a share buyback or took some other steps towards closing the discount”, rather than investing in a new venture.

“Investing in another e-commerce business that we don’t know about wouldn’t go a long way towards narrowing the discount,” he said.

Van Dijk said he could not comment further until the sale was complete.