Beggars can’t be choosers: Naspers moves to appease shareholders

Can experienced venture capital investors time a market top in technology stocks?

That’s the question on investors’ minds after the surprise announcement by Tencent Holdings’ top shareholder that it will sell some of its stake in the Chinese tech giant to finance a buyback of its own stock.

Prosus, majority-owned by Naspers, has also recently completed the sale of its US$3.7-billion stake in another Chinese tech company, JD.com.

It is an ominous sign. In the past, Naspers has managed to sell its Tencent shares more or less at market tops, both in March 2018 and April 2021. Just a year ago, it pledged not to sell any more Tencent shares for three years. But then came Monday’s U-turn. Did Naspers take profit from the mini tech rally this month — spurred by market bets that Beijing’s year-long regulatory crackdowns are over?

Thanks to Beijing’s heavy-handedness, this fear will bubble up on virtually any negative news on China tech. However, it is worth remembering that Naspers has financial considerations of its own — and its actions may not express any views on investing in China at all.

Prosus announced its financial full-year results Monday, with the market fixated on its widening holding company discount, estimated to be around 55% by UBS Group. Selling some of its 29% Tencent stake — now worth $134-billion — which accounts for 77% of Prosus’s value in a sum-of-the-parts analysis, to finance share buybacks could revive its dismal stock performance. Just like what SoftBank Group has done, share repurchases are an effective way for Naspers to narrow its valuation discount.

Conglomerate discount

Take a look at Prosus’s conglomerate discount over time. Much of the widening gap came this year, long after Beijing’s big tech crackdowns. One factor at play is Prosus’s sizeable exposure to Russia. It owns 100% of Avito, an online classified platform, and a 27% stake in VK, or formerly Mail.ru. They are likely worth close to nothing now.

Meanwhile, there is also the Nasdaq meltdown and a near freeze of initial public offerings in tech. According to UBS, Naspers’s stakes in food delivery and classified ad start-ups account for about 17% of its net asset value. How much are they worth now?

Beggars can’t be choosers. When there is a deep valuation discount and pressure from its investors, Naspers can’t really time market tops and must appease with cash handouts instead. For once, don’t read too much into this news.  — Shuli Ren, (c) 2022 Bloomberg LP