How Bekker amassed one of SA’s top fortunes
In his book ‘Koos Bekker’s Billions’, TJ Strydom tells how the former Naspers CEO invested in little-known Chinese firm Tencent
● “If you look at the long-term future, 10 years from now, I think e-commerce will be by far our biggest unit,” Koos Bekker said in 2012. With five years of good growth, he believed the likes of OLX, Ibibo and Allegro could “(take) over from pay-TV and maybe even from the listed investments”.
The listed investments were, of course, the mountain of value represented by Tencent and, at that stage, the molehill of Russia’s Mail.
Though Bekker was bullish on Tencent, he nevertheless severely underestimated its growth. By early 2022, Tencent was 10 times larger than it was a decade earlier, and still worth at least five times more than all the other Naspers (and by then Prosus) assets combined.
This hardly sounds balanced.
In fact, Tencent did so well that it not only made Naspers lopsided, but also created challenges on SA’s stock market.
While Naspers’s growth was certainly impressive in the years that immediately followed Tencent’s listing in Hong Kong, it was not the only gig in town.
The South African economy was still chugging along nicely, growing at more than 4% a year.
The mining companies listed on the JSE were benefiting from a global commodities boom, fuelled in large part by the rapid economic growth of China.
But in 2008, SA’s fortunes changed. Electricity supply constraints became evident, and growth slowed suddenly as soon as load-shedding became part of the vocabulary.
Business confidence suffered as rolling power cuts made it tougher for mining firms to supply platinum, iron ore, coal and gold to hungry markets in the rest of world.
The global financial crisis later that year ruined the appetite for commodities almost completely, pummelling the rand against major currencies.
The recession that followed ended a near decade-long consumer-spending bonanza.
The next decade would be one of stagnation under president Jacob Zuma. Policy uncertainty, indications of corruption on a grand scale, and weaker economic growth at home convinced many of SA’s largest companies to look for acquisitions abroad. But the successes were few and far between.
Many businesses destroyed value by betting on developed markets, with the R21bn Woolworths acquisition of Australia’s David Jones a prime example.
Others overpaid for ventures in lucrative but volatile markets such as Nigeria, where Tiger Brands forked out R1.5bn for a majority stake in Dangote Flour Mills, only to sell it for $1 three years later — and no, $1 is not a typo.
The JSE’s two standout successes after the global financial crisis were the no-frills bank Capitec and, of course, Naspers.
Between 2008 and 2018, Capitec’s market cap grew from about R3bn to more than R100bn.
Naspers ballooned from R60bn to more than R1,200bn in the same period. Capitec’s success was a local story as it gained millions of clients from more established financial institutions with its thrifty business model. By contrast, Naspers was all China.
During the Zuma years, SA in many respects turned into an economic basket case, with most of its fundamentals — infrastructure, human capital and competitiveness — going in the wrong direction. Yet the country’s net international investment position (NIIP) somehow improved.
This was as a result of “valuation changes”, according to a 2018 research note by Reserve Bank economists Bojosi Morule and Daan Steenkamp.
Though they did not spell this out, Naspers’s rally on the back of Tencent represented the only shift large enough to account for the improvement.
By 2018, SA actually compared favourably with other emerging markets despite a large deficit on its current account, the economists wrote.
So, one success managed to compensate for an entire economy’s woes.
In fact, Naspers did so well after the global financial crisis that the company effectively outgrew the JSE.
When Bekker took the reins in 1997, Naspers represented less than 1% of the stock exchange’s total value. When he stepped down as CEO in 2014, the company accounted for slightly more than 5% of the JSE’s value, largely thanks to Tencent’s growth. But by 2018 the Chinese company’s continued run had propelled Naspers to a market cap of more than R1-trillion, representing a whopping 25% of the JSE’s shareholder weighted index.
The largest players on most stock exchanges are institutional investors such as pension funds and other asset managers. As they deal with retirement savings, they are not inclined to bet the farm on a single investment.
They build diversified portfolios and are usually bound either by statutory regulations or self-imposed rules to not hold more than, say, 10% of their funds in one stock.
Naspers has been a blessing and a curse for SA’s asset managers. In sharp contrast with much of the rest of the bourse, it has delivered remarkable returns over nearly two decades.
Unfortunately, this means it has also consistently become too large a part of many institutional investors’ portfolios. So, these asset managers have constantly been forced to sell Naspers stock as soon as it represents more than a certain threshold of their holdings.
Imagine the frustration for a long-term investor of having to let go of your best performer, only to see it do even better the next year and the year after next.
Though Bekker was bullish on Tencent, he nevertheless severely underestimated its growth. By early 2022, Tencent was 10 times larger than it was a decade earlier, and still worth at least five times more than all the other Naspers (and by then Prosus) assets combined