Naspers/Prosus share swap is in the best interests of shareholders – Jean-Pierre Verster

Hedge fund guru and Protea Capital Management founder Jean-Pierre Verster unpacks all the topical investment matters with specific focus on what’s happening in China, given the regulatory crackdown surrounding Big Tech. He talks about his methodical approach when it comes to short-selling, having altered his mindset following events such as GameStop. And given the importance of the US to global financial markets, he shares insight on the lofty valuations in the US that seemingly go in one direction, upwards. – Justin Rowe-Roberts

Jean-Pierre Verster on the regulatory crackdown happening in China: 

Yes, it’s a very interesting development. As outsiders, it’s always difficult to really get a grip on exactly what is happening in China and what the intent is of the politicians. In China the politicians have a greater influence on the economy and on specific shares, than almost any other country. When Chinese politicians make these announcements, I think Western investors are prone to overreact and to think their actions are extremely detrimental to the Chinese companies. We have seen in the past that that is not the case. What the Chinese politicians seem to do is very similar to the Western world when it comes to anti competitive behaviour for instance.

On why Protea Capital Management was not part of the collaborative engagement against the Naspers/Prosus share swap: 

I think this is quite a nuanced issue. It’s a more complex issue than what a lot of investors including institutional and professional investors realise when you just look at it from a superficial level. When you look deeper, as we have done, you see that this share swap has got a lot of consequences for the long-term, which we believe will be positive for both Naspers and Prosus shareholders. But to get to the point where you come to that conclusion you have to go through some interesting paths. You need to discern between what management have said and what is stated in certain circulars and other information, and what is not said and fill in the gaps. I think a lot of investors have filled in the gaps in a way that makes the Naspers management look incompetent. It makes as if they are doing something that is not in the best interests of shareholders. While the way that we filled in the gaps, is to rather come to the conclusion that management can’t exactly say everything they are doing and what their long-term strategy is. But there is a very good reason for that, and that is that tax laws change and rules and regulations around foreign exchange restrictions change. If they tell us exactly what they want to do over the long-term, the rules might change in the interim. And then they can’t do what they want to do over the long-term. And what we firmly believe they want to do over the long-term is create a company that is primarily listed in the Netherlands that is tax efficient and that South African investors who for years have held this offshore asset called Tencent, but unfortunately through a very inefficient way – through a South African domiciled company called Naspers. Therefore whenever corporate action happens, it has very negative tax consequences for Naspers shareholders which will be resolved over the long-term.

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