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Naspers’s biggest shareholder is considering whether to reduce its R245bn stake in Africa’s biggest company because of concern it is overexposed to a single stock, according to four people with knowledge of the matter.

The Government Employees Pension Fund (GEPF) is being encouraged by its manager, the Public Investment Corporation (PIC), to reduce its Naspers shareholding of about 16%, said three of the people, who asked not to be identified as the talks are private. Any decision is ultimately up to the GEPF.

Naspers’s value has grown 72-fold since 2004 on the back of the success of an early-stage investment in Chinese games developer Tencent, which listed in Hong Kong that year. That has turned Naspers, an internet technology investor once focused on South African newspapers, into a R1.53-trillion global entity. But it has also made the company dependent on China, where it has little influence.

“Naspers’s success is dependent on the Chinese government,” said Tahir Maepa, deputy general manager for members affairs of the Public Servants Association, whose 240,000-members make it the biggest labor union representing contributors to the GEPF. “It’s a huge risk, not only for the PIC, it’s a risk for the South African economy and the JSE,” he said, adding that the GEPF should “definitely” cut its stake.

The rapid growth also means Naspers accounts for almost 25% of a shareholder-weighted index on the JSE. While that will be reduced when the company spins off its Tencent stake and other internet-focused assets into a new vehicle listed in Amsterdam in July, its 73% holding in that entity, known as NewCo, will only cut its weighting in Johannesburg by about a quarter, according to Naspers. Furthermore, Naspers and NewCo are both reliant on the Tencent investment, which is worth more than the company as a whole.

Tencent has been struggling with a Chinese government crackdown on addiction to computer games, and regulators are working on an overhaul to the approval process for new titles.

Naspers makes up almost 21% of the value of the GEPF’s listed equity holdings, the fund said in an e-mailed response to questions. “The GEPF does review its benchmarks from time to time”, although “not all reviews lead to changes”. The pension fund did not answer a query about whether it has held talks with the PIC about the Naspers stake.

Naspers declined to comment on discussions with specific investors. “The formation and listing of NewCo is in response to shareholder requests,” spokeswoman Shamiela Letsoalo said.

The move will allow investors to move “some of their weight off the JSE on to (Amsterdam’s) AEX index while at the same time continuing to lock in continued high returns,” she said. “This will likely result in shareholders having more balanced weightings and will help to reduce any overhang.”

While Naspers acknowledges that the company’s assets and management will overlap with NewCo “there are also important differences”, Letsoalo said. The parent group will separately own news business Media24, online marketplace Takealot and “continue to invest in SA’s fast-growing ecommerce and internet segment”, she said. “These differences will cause many investors to view them separately within their portfolio.”

NewCo will hold various internet businesses around the world, including Russian social-media network Group and Indian food-delivery service Swiggy, as well as Tencent.

The debate over the stake in Naspers has been going on for months. One element being discussed is whether the GEPF should change its holding from an arrangement known as a full SWIX, or shareholder-weighted index, to one called a capped SWIX, where a single stock can make up a maximum of 10% of the funds, three of the people said. Any sell down would be done in phases, one of the people said.

Phased selldown

Last October, another of the PIC’s clients, the Unemployment Insurance Fund, sold Naspers shares to switch from a full SWIX position to a capped one, the fund said. Prior to this it had used derivatives to hedge the risk but found this too costly, it said.

What to do with the GEPF’s Naspers stake is being considered by the fund’s board of trustees, one of the people said. Pierre Snyman, a member of the board and chairman of the Public Servants Association, declined to comment.

Some senior members of the GEPF are opposing cutting the shareholding, said one of the people.

“The PIC does not publicly discuss its strategy on specific investee companies,” Deon Botha, its head of corporate affairs, said in a response to queries.


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