🔒 Basil Sgourdos: Prosus listing has unlocked $20bn for Naspers shareholders

On Rational Radio this week, Naspers Group CFO Basil Sgourdos told Alec Hogg how the decision to list the group’s global internet assets in the now Dutch listed company Prosus, has unlocked more than $20bn for shareholders. Speaking from Amsterdam on the day Prosus shares were listed, Sgourdos explained that since the strategy was announced, the shares’ discount to underlying assets has dropped from 45% to under 35%. That discount contracted still further today, delivering a further boost for owners of Naspers shares. He also shared how the listing went, what happens next and unpacked today’s SENS announcement relating to a R176m transaction on shares for the top three executives.

No doubt today is a milestone in the company’s history. How does the actual listing in Amsterdam work?
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Effectively what we’ve done is we’ve given our existing shareholders the opportunity to swap out some of the holding – that they have on the JSE – on the Euronext and that’s how we’ve created the liquidity. It’s quite similar to the JSE, so now those shares are registered on the Euronext. Shareholders are now making the election and remember we did give some shareholders the opportunity to pick an aspect if they wanted it, but the overwhelming demand is going to be for Prosus – in terms of the election – and we will know that outcome by the 16th of September which is next Monday. From there, Prosus now becomes Europe’s largest consumer Internet company. In fact, three times larger than its closest peer, it becomes the third largest company on the Euronext by market capitalisation.

When you look at liquidity – because some of these companies have 100% of their stock on the exchange – we’re about the eighth largest on the Euronext in terms of volume traded. So it started off well this morning, we set an opening price driven off what Naspers’s closing price was yesterday, multiplied by the Naspers shares and divided that by the number of Prosus shares outstanding and that’s how we set the reference price. From there it’s moved up very quickly and as a result the discount at the Prosus level has narrowed considerably, but so has the discount at the Naspers level. Before we started all of this, we were at about a 45% discount to the underlying net asset value – as of yesterday we were about 30%. So that’s already a 10% reduction. Today it seems that Naspers has also opened up well with further narrowing in the discount. So overall – between these two moves – we’ve probably unlocked something like $20bn of value for our shareholders.

That’s extraordinary. When you put it like that – all the hard numbers, all the hard work, all the criticism that you put up with – is worth it.

Yes,  I think our shareholders weren’t critical of us, they were asking us to find the right solution and it wasn’t a simple answer. This was a complex problem, it’s actually a unique problem. I don’t think it’s ever existed. I haven’t gone back hundreds of years, but certainly – in my professional career – I don’t think a company has ever had to solve the problem where you’re 25% of an exchange. How do you do this in a sensible manner? How do you do it in a way that protects shareholder value and doesn’t result in the incremental costs and leakage? So we worked tirelessly over the last 18 months to come to this approach. It’s just great to see that it’s delivering something for our shareholders. Is it done? No. Is there going to be more work? Absolutely I’m sure, because our ambitions are to keep building that market cap and building the valuation and therefore there’s going to be more things that we’ll have to do going forward.

The discount has narrowed from 45% to under 35% – as you say it was a good day today – but in practical terms, what happens on a listing like this? Do you arrive – as in the old days at the JSE – with the big fanfare, people on the floor cheering for you? Obviously with electronic exchanges it doesn’t work like that but do they put on a bit of a show?

Yeah. It was great. I woke up at five thirty this morning and I just took a moment to reflect on the journey we’ve been on and on the wonderful team that helped us get to this point. And then I arrived here this morning to see the branding and the colours all over the exchange. The Euronext have been fantastic hosts. The CEO was there, the entire executive team was there and the head of Euronext global markets was there –  Anthony who also heads up Euronext Paris and our people in Amsterdam were there. We had a good breakfast together and a couple of moments of reflection and we then walked out on to the platform and Bob gave us a solid gong – loud and clear – and Euronext knew we were here. It was filled with people – business partners, employees, Euronext people – as well as some public on the floor. It was a great atmosphere. We also had Nicky from the JSE and that was wonderful. The JSE have been absolutely great over the years, they’re a big part of our success. We’re also inward listed on the JSE, so Prosus is now on two exchanges.

It was interesting to see the JSE trading this morning where Naspers made up about a third of the trading and Prosus made up about 20% – more than half the two companies. Of course it’s the first day of listing, so it might be exaggerated, but there were concerns that the JSE would struggle because of this listing. It might actually go the other way, they might get a benefit from a higher trade.

I hope that would be the case over the long term because – at the end of the day – this is the way I look at it. Prosus no longer has the structural issues of being too big for its exchange. It also had the advantage of opening up pools of capital that otherwise couldn’t invest in a South African company or an emerging market company, so by taking those two things away, you actually allow the markets to better price the underlying assets. Once the market prices it, you then look at Naspers and see you’re buying the same assets, so why should you pay more? There’s opportunity on the JSE – it’s fundamentally the same business. I would step in and buy some. I think that’s the sensible thing to do – certainly what I’m doing – and hopefully that momentum builds. We now have bigger pools of capital, better pricing of the asset and we certainly hope that it also reflects on on the JSE and Naspers and brings more money into South Africa. These are the same great assets that everyone’s so excited about, we can buy them at a good price here too. People indicated that to us going on the road shows. It’s great for the JSE and it’s great for Naspers in South Africa.

Have you been surprised at the level of publicity that has surrounded this listing?

No, is quite a unique thing and it was quite a unique problem that we were trying to solve and we are a big company. So yeah. lots of interest, many stakeholders involved and generally a lot of discussion.

I suppose a little different now to have the FT and the big magazines from Europe and of course dealing with the big names – not that you haven’t been dealing with the likes of Goldman Sachs and JPMorgan. One last thing. What is the SENS announcement – this morning – about Naspers’s restricted stock plan trust. A R176m transaction. What is it and how do we understand that?

Historically, management is incentivised at two levels. First of all we get e-commerce share appreciation rights. So that’s really everything excluding our listed assets like Tencent. We have to create value there and that accounts for about half of our compensation – Bob’s and mine. The balance is related to Naspers. It makes sure we take structural action to address things like the discount. Historically the way we’ve got exposure to Naspers, is through options. So what effectively happens now is we get actual stock – we only get that in three years time – and we only get it if we actually outperform the set of internet companies. It fundamentally aims to ensure that we continue to create value by outperforming a list of meaningful peers including the likes of Facebook, Google, Amazon and if we do that well – on a continuous basis – we get rewarded. If not, then we don’t.

Thanks for articulating that. One last question. Capital gains that are now being set. How does that work? A lot of South African shareholders will be looking at their Prosus shares, they’ve sold their Naspers shares to get Prosus – and so on. What is the number going to be?

Essentially you take Prosus shares as a South African retail/corporate investor – this doesn’t apply to institutional investors – you will pay capital gains on the full value of the Prosus shares, based on the closing today. That’s going to be more than paid for by the value gains. To bear in mind, it’s not an extra tax. It’s timing, because you would have paid capital gains tax eventually when you sold your Naspers shares, so it just brings things forward a little bit. I think most shareholders are going to pay – it’s not unique to South Africans – several other jurisdictions will face a similar type of tax.

So the tax man is saying go Prosus share price because the higher it closes today, the more capital gains will go into the Treasury.

Exactly.

Basil, thanks for the chat. You leaving Amsterdam now and are you coming back to South Africa for a roadshow?

We’ve done the road trips. We’ve got a global summit in San Francisco and it’s going to be a wonderful one this year. A lot to reflect on and be happy about.

Basil Sgourdos is the financial director of Naspers talking to us from Europe.

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