GUPTAGATE
Why we should all worry about the FBI investigation
The major vulnerability lies in the nature of Naspers’s investment in Tencent’s hugely valuable internet businesses
The prospect of Naspers being dragged into an FBI investigation into the Gupta family should send a chill down the spine of every South African invested on the JSE. Because of the opacity of the Naspers’s control structure and the unusual nature of its investment in Tencent, it’s impossible for investors to know what the implications of a high-profile corruption scandal would be for Naspers’s 33.25% investment in Tencent. The major vulnerability lies in the nature of Naspers’s investment in Tencent’s hugely valuable internet businesses. Because of restrictions on foreign ownership of Chinese technology companies, Naspers does not own shares in any Chinese operations directly. Instead, it owns shares in an intermediary, the Hong Kong-based Tencent.The intermediary has contracts with a slew of China-based internet businesses that make up Tencent. This gives Naspers indirect rights to receive cash flow and exercise some control. The enforceability of the contracts are questionable unde...
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