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South African internet group Naspers, Tencent’s biggest shareholder, has abandoned a pledge not to sell stock in China’s most valuable company as it seeks to finance a buyback to help its struggling share price.
Naspers, which owns 29 per cent of Tencent through Prosus, its international investment arm listed in Amsterdam, said on Monday that it would “begin selling small numbers of ordinary shares . . . regularly and in an orderly manner” to fund repurchases of its own stock.
Last year Naspers, which is listed in Johannesburg, committed not to sell Tencent shares for another three years after disposing of part of its stake for only the second time in decades, as it ploughed money into global internet assets that span food delivery, payments and classified ads.
The move is the latest attempt by Naspers and Prosus to narrow the gap between their valuations and that of their Tencent stake. It follows a recent rebound in shares of Tencent, which have fallen from a high in early 2021 as Beijing cracked down on the country’s tech sector.
The failure of Naspers’ share price to reflect the value of its Tencent stake prompted the group to create and list Prosus in 2019, which now owns the Tencent stake. But the valuation gap now also plagues Prosus.
“Tencent is supportive of the withdrawal by Prosus of its voluntary restriction on the sale of its Tencent shares,” Naspers said. Daily sales of Tencent stock “will represent a small percentage of average daily traded volume of Tencent shares”, it added.
“We can run [the buyback] for years and at a large scale,” said Bob van Dijk, chief executive of Naspers and Prosus. He added that the net asset value of Prosus would increase on a per share basis with the buyback programme, meaning “you’re getting more Tencent per share as a result of this”.
This year’s carnage in internet stocks caused the net asset value of Prosus to fall and “the discount to the group’s sum of the parts increased to an unacceptable level”, the group said in annual results also released on Monday.
Prosus said that its ecommerce businesses grew by 50 per cent in the year to the end of March, but earnings dropped 23 per cent to $3.7bn as the company increased investment and the value of its Tencent investment was hit by regulatory scrutiny in China.
Shares in Prosus had fallen by a third before Monday’s buyback announcement, which sent the stock up more 10 per cent in early trading.
The buyback “will run as long as elevated 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 outstanding Prosus shares, indicating the scale of the repurchase programme.
Prosus also revealed on Monday that it had sold over $3.6bn in Chinese ecommerce group JD.com shares that it received from Tencent, in an effort to bolster its investment-grade credit rating.
Prosus has devoted a quarter of the $50bn it has invested over the past six years to buybacks. Last year it invested over $6bn in internet assets, such as the acquisition of BillDesk, the Indian payments company.
“We are going to be careful with M&A at this point in time . . . there are good deals on the market but the flipside is the cost of capital has gone up for us and everybody,” 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 spin off the Tencent stake to investors directly, citing large tax bills and long-term strategic goals.
“Getting rid of Tencent is something we think is not in our shareholders’ interests,” van Dijk said. Compared to a spin-off, buybacks have “virtually no friction at all”, he said.
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