Picture: BLOOMBERG
Picture: BLOOMBERG

As Hong Kong prepares to allow companies with control structures to list there, analysts say Naspers might be tempted to consider moving its primary listing to the Asian city as pressure mounts on the media company to reduce its hefty valuation discount.

Hong Kong, where Naspers’s crown-jewel Tencent is listed, recently launched rules that accommodate firms with dual-class shares, the funding structure frequently used by technology firms to shield them from hostile takeovers.

Some investors, including many of Naspers’s backers, are critical of these structures as they give extra voting power to executives or related parties.

Nevertheless, market regulators in Hong Kong, and more recently in Singapore, have agreed to allow groups with dual-class shares to list, partly in an effort not to fall behind New York, which has won over several of these Chinese listings.

After Naspers’s management said in June it was evaluating several options to reduce the group’s valuation discount of more than 40% — partly the result of it having outgrown the JSE — investors are waiting for more clarity.

Naspers chief financial officer Basil Sgourdos said only that the options to pursue a secondary listing for the company abroad and unbundle Tencent had been shelved.

Graphic: RUBY-GAY MARTIN
Graphic: RUBY-GAY MARTIN

While Sgourdos has said in the past it would be extremely difficult for Naspers to move its primary listing abroad, largely because of SA’s exchange controls, some market commentators believe it could still be considering the option.

Arthur Karas, who comanages Old Mutual’s Edge 28 fund, said if Naspers moved its primary listing from Johannesburg to Hong Kong, "you’d make it very hard for investors to ignore the arbitrage opportunity, so it would be difficult for people not to try and close that gap".

"It wouldn’t eliminate all the reasons for the discount being there, but I think it would go some way towards addressing it," Karas said.

Discount factors

Other factors behind the discount included the various unprofitable businesses in Naspers’s portfolio, relatively poor disclosure about underlying firms, and the group’s opaque control structure.

Karas said if Naspers moved its primary listing, that could also reduce its lofty weighting in South African indices, an issue that concerns many local investors and fund houses.

IF NASPERS MOVED ITS PRIMARY LISTING, THAT COULD ALSO REDUCE ITS LOFTY WEIGHTING IN SOUTH AFRICAN INDICES.

Naspers makes up more than 20% of the JSE’s Top 40 index, which means that South African funds have concentrated positions. If the company were to retain an inward listing on the JSE, its free float would be adjusted downwards through the exclusion of non-South African shareholdings.

Karas said that he would like to see a "comprehensive approach" to addressing the valuation discount.

The group should raise its disclosure about underlying businesses and provide a road map for when various companies could be listed separately.

Building the American Depository Receipt programme, or moving the group’s primary listing elsewhere, could also help to narrow the discount, Karas said.

"And I think the one thing we shouldn’t ignore is that when things are going well we tend to not worry about things like control structures, but when things are going badly we immediately say we don’t like them.

"We can’t ignore that as investors we can’t impose our will on this company, we are limited by what the control structure will allow," he said.

hedleyn@businesslive.co.za