🔒 Financial Times perspective: Naspers/Prosus deal assessed by FT’s Lex

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South Africa’s SoftBank divides and hopes to conquer

Advantages of the share swap include limited tax leakage and moving asset ownership abroad

Naspers punches both above and below its weight. Rather like a South African SoftBank, it pulled off a truly terrific coup. Twenty years ago, the investment business paid $32m for a 31 per cent stake in Tencent. The Chinese internet group went on to become one of the world’s 10 most valuable companies.

There is another similarity with the Japanese tech group: Naspers has consistently traded at a big discount to net asset value.

Unlike SoftBank, location might be one reason. Naspers is a whale in a very small pond, accounting for nearly a quarter of the Johannesburg stock market. To get round this
Naspers decanted assets into a new vehicle, Prosus, listed on Amsterdam’s big bourse.

On Monday the two entities completed a share swap, effectively splitting the portfolio 60/40 in Prosus’ favour.

Naspers’s JSE weighting falls from 23 per cent to 13-14 per cent. This will make it easier for domestic investors, who make up 44 per cent of the shareholder register, to replicate.

Prosus investors, trading on a far more liquid market, can easily brush off the subsequent doubling of their holding’s weighting, to 7.5 per cent. Tencent is under fire at home but its shares still made up 13 per cent of the MSCI China Index at the end of July.

Other advantages of the restructuring include limited tax leakage and moving asset ownership out of South Africa. Foreign investors see political risks as high, albeit that current president Cyril Ramaphosa has calmed fears.

Arbitrage opportunities are less certain. Asymmetric voting rights give the upper hand to Naspers, a business whose own ultimate ownership is unclear. Flowback is inevitable in any deal that hands investors paper in a foreign jurisdiction, meaning buybacks will probably follow.

Once the dust settles the duo may well trade at differing discounts to NAV, given currency and other risks. Index compilers say they may treat the two as a single
company when it comes to capping weighting.

Naspers has resolved the issue of size. It has more to do to convince investors it is worth the sum of its parts.

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