South African internet group Naspers, Tencent’s largest shareholder, has backed out of a pledge not to sell shares of China’s most valuable company as it seeks to fund a takeover to help its share price. distressed stock.
Naspers, which owns 29% of Tencent through Prosus, its Amsterdam-listed international investment arm, said on Monday it would “start selling a small number of ordinary shares. . . regularly and in an orderly manner” to finance the buyback of its own shares.
Johannesburg-listed Naspers last year pledged not to sell shares of Tencent for another three years after selling off part of its stake for only the second time in decades, as it was pumping money into global internet assets spanning food delivery, payments and classifieds.
The move is the latest attempt by Naspers and Prosus to narrow the gap between their valuations and that of their stake in Tencent. This follows a recent rebound in Tencent shares, which fell from a high in early 2021 as Beijing clamped down on the country’s tech sector.
The inability of Naspers’ share price to reflect the value of its Tencent stake prompted the group to form and list Prosus in 2019, which now owns the Tencent stake. But the valuation gap now also affects Prosus.
“Tencent supports Prosus’ withdrawal of its voluntary restriction on the sale of its Tencent shares,” Naspers said. Daily sales of Tencent shares “will be a small percentage of the average daily volume of Tencent shares”, he added.
“We can run [the buyback] for years and on a large scale,” said Bob van Dijk, chief executive of Naspers and Prosus. He added that Prosus’ net asset value would increase per share with the buyback program, which means “you get more Tencent per share through this.”
This year’s carnage in internet stocks has caused Prosus’ net asset value to plummet and “the discount on the sum of the group’s coins has risen to an unacceptable level”, the group said in annual results also released on Monday.
Prosus said its e-commerce business grew 50% in the year to the end of March, but profits fell 23% to $3.7 billion as the company ramped up investments and that the value of his investment in Tencent was affected by regulatory review in China.
Shares of Prosus had fallen by a third before Monday’s takeover announcement, sending the stock up more than 10% in early trading.
The buyback “will continue as long as the high levels of the trading discount to the group’s underlying net asset value persist,” Naspers said. It will also ask shareholders for permission to buy back up to half of the outstanding Prosus shares, indicating the scale of the buyback program.
Prosus also revealed on Monday that it had sold more than $3.6 billion of shares in Chinese e-commerce group JD.com that it received from Tencent, in a bid to bolster its investment-grade credit rating. .
Prosus has devoted a quarter of the $50 billion invested over the past six years to buyouts. Last year, it invested more than $6 billion in internet assets, such as acquiring BillDesk, the Indian payments company.
“We are going to be careful with mergers and acquisitions at this stage. . . there are good deals in the market, but the flip side is that the cost of capital has increased for us and for everyone,” van Dijk said. The company had no interest in buying Grubhub, the struggling US food delivery company, he said.
Naspers has previously resisted shareholder pressure to sell Tencent’s stake directly to investors, citing large tax bills and long-term strategic goals.
“Getting rid of Tencent is something that we believe is not in the interests of our shareholders,” van Dijk said. Compared to a spin-off, takeovers have “virtually no friction,” he said.