Prosus to unload stock
SHARES BUYBACK: REASON TO SELL R2.1 TRILLION STAKE IN TENCENT
Company says it will manage the sale in an orderly fashion.
Prosus is planning to sell more of its $134 billion (about R2.1 trillion) stake in Chinese internet giant Tencent to finance a buyback programme, reversing a pledge to hold onto the full shareholding.
Tencent erased earlier gains in Hong Kong yesterday as investors pondered the extent to which Prosus, the Chinese company’s biggest shareholder, will unload its stock. “We will keep selling Tencent shares to buy back our own shares, it’s open-ended and an unlimited programme,” Prosus CEO Bob van Dijk said.
“It’s actually a small part of Tencent daily traded volumes – it should be maximum between 3% and 5%.”
The move represents a change of heart by Dutch e-commerce giant Prosus – majority owned by Naspers – which said after its last sale in April 2021 it wouldn’t offload more shares for three years.
The company, spun off from Naspers in 2019, owns the 29% stake after its parent became an early Tencent investor more than two decades ago, bagging a multi-billion dollar return in one of the most profitable early bets in tech investment history.
Prosus’s value increased to €120 billion (about R2 trillion) after the share jump, narrowing a long-standing discount to the $134 billion Tencent stake.
Less than zero
The discrepancy means the market values the rest of the company’s assets – which include food delivery, travel bookings and online education sites across the world – at less than zero. This state of affairs has become “unacceptable”, Prosus said, having worked for years to convince the market it’s underappreciating the company.
Prosus is “finally accepting that this is the best – and perhaps only – way to close the 30%-plus discount”, Bloomberg Intelligence analyst John Davies said.
“The announcement of the plan may quickly reduce the gap. Other value-creation efforts are likely to take longer, simply due to the investment horizons.” The business reduced the full-year operating loss to $859 million in the year through March from more than $1 billion, though core headline earnings per shares – its preferred measure of analysing its finances – declined. Prosus disclosed the plan on the same day as it reported the sale of almost $4 billion of stock in e-commerce giant JD.com, received from Tencent as a special dividend. The twin deals revive concerns around the long-term viability of holding shares in Chinese internet firms, which are only just emerging from more than a year of unprecedented scrutiny from Beijing.
While Prosus’ investment remains wildly in the money, it selling after Tencent shed roughly half its value since a 2021 peak, hammered by the government’s campaign to curb the power of its largest internet corporations.
Prosus said it will manage the sale of Tencent stock in an orderly fashion. It aims to focus on increasing the value of non-Tencent assets, Van Dijk said, while retaining exposure to the Chinese company.
Tencent said it expects limited impact on the Chinese social giant itself.
We will keep selling Tencent shares to buy back our own shares