Naspers insiders call the shots in Tencent listing plan

The move raises the stakes in the South African company’s attempts to deal with the 40% discount at which its stock trades in Johannesburg.

The new company, which is yet to be named, is billed as Europe’s largest listed consumer internet company by asset value, and will have a secondary listing in Johannesburg. The plan is subject to regulatory approval and won’t be implemented until at least the second half of this year.

Mark Lawrence, investment analyst for frontier markets at T. Rowe Price in London, says the Amsterdam listing will ease technical pressure on local demand for the shares, as Naspers accounts for nearly 25% of the Johannesburg Stock Exchange. That weighting restrains the capacity of local investors, constrained by limits on single-stock exposure, to buy the shares.

• The technical pressure won’t be eliminated: after the listing of the new company, Naspers will remain the largest South African company by market capitalisation.
• Yet the move will widen the global pool of Naspers investors, Lawrence says, and Naspers is counting on the new stock entering a range of developed market indices.

The news sent Naspers shares to their highest in seven months in Johannesburg. Shareholders will get value in the form of shares in the new company.

However, the fundamental problem of insider control at Naspers remains. Earlier in March, I argued that the spin-off of the company’s pay-TV company MultiChoice would not be sufficient to narrow the discount in the light of Naspers’ dual-class share structure, which ensures effective insider control.

Majority control 

Fergus Argyle at Mobius Capital Partners in London agrees that the listing of the Tencent stake, valued at $134bn, is positive and that, “at the margin”, access to international capital will be improved.

Argyle argues that the Naspers discount may have been worsened by the decision to sell Tencent shares in March 2018. “They raised $10bn to invest elsewhere – but are yet to deploy the capital,” he says. It’s an issue that “this move doesn’t yet resolve”.

Investors will remain without leverage in attempts to influence the use of the money – or anything else.

• Naspers will still control the new Amsterdam-listed unit by keeping a 75% stake, with the rest making up the free float.
• The board and governance structures of the new company will mirror those of Naspers.
• Nor will investors get a pure Tencent play: also included in the new company to be listed in Amsterdam are all of Naspers’ internet interests outside of South Africa, including investments in Russian internet platform Mail.Ru, German food delivery business Delivery Hero and Indian e-commerce startup Swiggy.

International investors attracted by the discount already had the option of gaining exposure to Naspers via its American depositary receipts but have shown no great willingness to do so. Remember that Naspers management holds unlisted A-shares, each with the right to 1,000 votes. JSE-listed N-ordinary shares have one vote each. This allows management and directors to maintain control with only a relatively small block of shares.

Naspers, in effect, is asking a new set of investors whether they are willing to tolerate this status quo.

Bottom line:

The listing is likely to pull in some new investors among index-tracking funds, but those hoping for a quick narrowing of the discount will find that insider-controlled holding companies are marked down just as heavily by European as by South African markets.