Naspers plans Prosus share swap

Prosus NV is redoubling its effort to narrow the valuation gap between itself and its giant holding in Tencent Holdings Ltd.

The Dutch-listed-unit’s dominance of the Johannesburg stock market — via its holding company Naspers Ltd. — limits the amount of its shares investors can own, causing a deep discount to its $229 billion-dollar stake in Tencent.

Prosus is now attempting to more than double the number of its shares available for trading, making the stock more liquid and giving investors in Naspers a chance to shift their holdings to Prosus, the parent company said in a statement on Wednesday.

Prosus will also launch a further $5 billion share buyback once the share-swap deal is complete, Chief Financial Officer Basil Sgourdos said in an interview with Bloomberg.

“The share offer we have announced today will extend Prosus’s standing as Europe’s largest internet company,” Chief Executive Officer Bob van Dijk said in a statement. The aim is to create “a stable construct that maintains the group’s operational, strategic and financial flexibility.”

Naspers has tried for years to achieve a valuation greater than the sum of its parts and stop being seen as merely a proxy for investing in WeChat-creator Tencent. Cape Town-based Naspers was an early-stage investor in Tencent and has gradually been eclipsed by the Chinese business’s soaring valuation.

Naspers shares were up about 3% at 9:19 a.m. in Johannesburg, while Prosus stock increased around 2.9% in Amsterdam.

Prosus is the holding company Naspers created in 2019 to diversify away from South Africa and give investors more direct exposure to its broad portfolio of tech businesses. The global e-commerce holding company makes up almost a fifth of the country’s main stock exchange, even after spinning off most of its assets into Amsterdam-listed Prosus NV.

Many South African tracker funds are forced to cap the amount of Naspers stock in their portfolio, which limits growth potential for the shares compared with that of Tencent. Wednesday’s transactions will reduce that weighting significantly.

The transaction is expected to be implemented during the third quarter of this year.

John Davis, senior telecom, media and internet analyst at Bloomberg Intelligence, said Prosus and Naspers’ plan to increase cross shareholdings may reduce the headwind of investors’ single-stock limits on the latter in particular, but increases the complexity and doesn’t address the elephant in the room: the discount to Tencent.

Prosus trades at less than the value of its Tencent stake — let alone its other investments — which continues to imply that the market thinks that Prosus isn’t spending its Tencent gains effectively.

Now read: Prosus on the hunt for acquisitions

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Naspers plans Prosus share swap