Prosus to sell part of its Tencent stake for increased flexibility amid Covid-19
PROSUS, the technology investment group, is continuing to pare down its stake in tech behemoth Tencent with plans to sell more than 191 million shares, or 2 percent of its shares, valued at about $15 billion (R218bn) as it seeks further acquisitions for growth amid Covid-19.
Prosus, a subsidiary of Naspers, will reduce its stake to 28.9 percent from 30.9 percent in Chinese tech giant Tencent, and intends to use the proceeds of the sale to increase its financial flexibility to invest in growth sectors and for general corporate purposes.
Naspers also sold 190 million shares in Tencent in March 2018, worth $10bn, to reduce its stake in Tencent. Its share price ended 5 percent lower at R3 485.00 yesterday. Prosus’s share price fell to a day-low of R1 612.99 down from Tuesday’s closing price of R1692, before closing at R1622.32.
Prosus chief executive Bob van Dijk said the Covid-19 pandemic had accelerated digital transformation across the group’s growth sectors, mainly online classifieds, food delivery, payments and fintech, education and e-commerce.
“The proceeds of the sale will increase our financial flexibility, enabling us to invest in the significant growth potential we see across the group, as well as in our own stock,” Van Dijk said.
Van Dijk told the New York Times in a “Dealbook” interview published this weekend: “It’s easier to do acquisitions in a market that is cooling off.”
Amid Covid-19, consumers globally have flocked online, changing their purchasing behaviours, which Prosus is betting on.
“Research indicates that new habits formed now will endure beyond this crisis, permanently changing what we value, how and where we shop, and how we live and work,” according to consulting firm Accenture.
Prosus last year began a $5bn buyback of its shares as well as Naspers shares.
Peter Takaendesa, the head of equities at Mergence Investment Managers, said the proposed transaction was similar to the 2018 transaction in terms of the 3-year lock-up period and the 2 percentage points reduction in their Tencent shareholding.
“However, the gross proceeds will be close to $15bn this time compared to $10bn in 2018 as Tencent shares have performed very well since then.
“While the transaction is largely in line with Prosus’s long-term strategy to diversify its earnings by reducing Tencent’s dominance through accelerated growth in other internet assets, we suspect that some investors are not happy with reducing exposure to Tencent in order to fund currently loss-making non-Tencent investments,” Takaendesa said.
He said investors preferred that any proceeds from the disposal of Tencent be applied more towards buying back Prosus and Naspers shares that were currently trading at huge discounts to the value of their underlying assets.
Nesan Nair, a senior portfolio manager at Sasfin Securities, said the sale represented a value unlock, even though it was quite small.
“I think the slide in Prosus’s share price this morning has more to do with the 3.75 percent drop in the Tencent price overnight. However, the Prosus share price should recover and the offering would have been received much better by the market if it were not for the fall in the Tencent price,” Nair said.
Stephen Meintjes, the head of research at Momentum Securities, said: “The share price movements in Prosus and Naspers may simply be reflecting the movement in their major investment in Tencent, which will remain dominant even after the sale of a further 2 percent … It is likely that European investors in Prosus were strongly motivated by the opportunity to buy a chunk of Tencent at a huge discount rather than the prowess of Prosus and Naspers’ internet investments despite their improved showing of late, but that still remains to be seen,” Meintjes said.
Tencent last month confirmed that it had been in talks with regulators in China.
China has increased scrutiny of its internet giants in recent months, citing concerns over monopolistic behaviour and potential infringement of consumer rights.
Last month the firm was fined for failing to seek approval for past investments such as its stake in online education app Yuanfudao.