South African Internet group Naspers, Tencent’s largest shareholder, has reneged on a pledge not to sell shares of China’s most valuable company as it seeks to finance a buyback to help its struggling share price.
Naspers, which owns 29% of Tencent through Prosus, the international investment arm listed in Amsterdam, said on Monday that it will “start selling a small number of common shares. . . regularly and orderly” to finance its own repurchase of shares.
Last year NaspersThe Johannesburg-listed company has pledged not to sell shares of Tencent for another three years after delisting part of its shares for only the second time in decades, as it poured money into global internet assets including including food delivery, payment and classified ads.
The move is the latest attempt by Naspers and Prosus to close the gap between their valuation and Tencent share. It follows a recent rally in Tencent shares, which have fallen from highs in early 2021 as Beijing cracked down on the country’s tech sector.
The fact that Naspers’ share price did not reflect the true value of Tencent shares led the group to establish and list Prosus in 2019, which now owns shares of Tencent. But the pricing gap now affects Prosus as well.
“Tencent supports Prosus’ withdrawal of the voluntary restriction on the sale of its Tencent shares,” Naspers said. Daily sales of Tencent stock “will represent a small percentage of the average daily trading volume of Tencent stock,” it added.
“We can run [the buyback] for many years and on a large scale,” said Bob van Dijk, chief executive officer of Naspers and Prosus. He added that Prosus’ net worth will increase on a per-share basis with the buyback program, meaning “you get more than Tencent per share as a result of this.”
This year’s ravaged Internet stocks have caused Prosus’ net worth to drop, and “the discount rate for the group’s total divisions has increased to an unacceptable level,” the group said in the results. annual is also announced on Monday.
Prosus said its e-commerce businesses grew 50% in the year to the end of March, but earnings fell 23% to $3.7 billion as the company increased investment and the value of its investments. Their investment in Tencent is affected by regulatory scrutiny in China.
Shares of Prosus fell by a third ahead of Monday’s buyback announcement, sending the stock up 10% in early trading.
The buyback “will take place as long as the transaction discount above the group’s underlying net asset value remains,” Naspers said. It will also seek permission from shareholders to repurchase up to half of the outstanding Prosus shares, showing the size of the buyback program.
Prosus also revealed on Monday that it has sold over $3.6 billion in the Chinese e-commerce group JD.com shares it received from Tencent, in an effort to bolster its investment-grade credit rating.
Prosus has spent a quarter of the $50 billion it has invested in the past six years on acquisitions. Last year, it invested more than $6 billion in internet assets, such as acquiring BillDesk, the Indian payments company.
“We will be careful with mergers and acquisitions at this point. . . there are good deals in the market but the downside is the cost of capital has increased for us and everyone,” van Dijk said. The company is not interested in buying Grubhub, the struggling American food delivery company, he said.
Naspers has previously resisted shareholder pressure to transfer Tencent shares to direct investors, citing large tax bills and long-term strategic goals.
Van Dijk said: “The removal of Tencent is something that we think is not in the best interest of our shareholders. Compared to an acquisition, a buyback “has hardly any friction,” he said.