Naspers bullish on Tencent’s future, its CEO says

Questions continue to swirl around Naspers’s continued support of Tencent as a number of international investors in Chinese tech companies have been selling down or exiting their stakes. Yet Africa’s largest listed group has chosen to remain involved with and back Tencent.

While sentiment remains shaky on Chinese internet companies, Naspers, one of the largest international investors in the space, says it is bullish about China’s e-commerce market and its holding in Tencent.

“We remain very bullish on Tencent’s future, about its assets and also the management team,” Naspers CEO Bob van Dijk said during an investor call as the group reported full-year earnings to March 2023. 

“We believe firmly that the Chinese consumer internet market remains one of the most exciting places in the world to deploy capital. And we think Tencent is going to do exceptionally well in that context.”

Van Dijk’s comments come amid a broader trend of early international backers of Chinese firms now cashing out their investments, having made billions in profit.

In August 2022, SoftBank said it had unloaded billions of dollars in shares in e-commerce pioneer Alibaba. In September, Warren Buffett’s Berkshire Hathaway further trimmed its stake in China’s biggest electricvehicle maker BYD.

All this is compounded by Tencent having been hammered by the Chinese government’s crackdown of the tech sector over the past few years.

­“We will be very large shareholders for a long time and there is no intention whatsoever to do anything like what SoftBank has done, because we believe in the business and we actually are increasing the per share exposure,” said Van Dijk. 

Tencent was an incredible find for Naspers when it invested $32m for a stake that is now worth over $100bn. It is considered one of the best investments in venture capital the world over. But that gift has come with its curse.

In recent years, the group has tried a number of complex financial manoeuvres to address investors’ concerns, the main one being a wide gap between its market capitalisation and the value of its underlying assets, driven by Tencent.

Outside the Chinese tech crackdown, some investors want the group to unbundle its Tencent stake, held through its Amsterdam-listed unit Prosus. 

“In my view, the cheapest and simplest way to reduce Naspers’s NAV would be to sell the bulk of the Tencent holding, or to spin Tencent out directly to current Naspers shareholders,” said Michael Treherne, a portfolio manager at Vestact Asset Management.

The Naspers/Prosus stable has been selling down its stake over the years to fund corporate activities and investment in the rest of its portfolio. 

In June 2022, the group initiated an open-ended share repurchase plan meant to help with this mission. To make this happen, Prosus went back on its word not to sell more of Tencent’s stock for three years in June, saying it needed the money to fund the buyback. 

During the investor call, William Packer of BNP Paribas Exane, voiced another feeling among investors, saying: “I think it’s fair to summarise that for investors that know the Prosus story well, the sell-down and buyback is very popular and has helped reduce the discount. However, when I speak to Tencent holders, particularly in Asia, there’s palpable scepticism. They worry that Prosus is pursuing a strategy closer to SoftBank with its Alibaba holdings and gradually heading for the exit.”

“Prosus selling will therefore be a semi-permanent overhang on Tencent, which is pressuring their share price and in turn a drag on Prosus. Do you have any comments to reassure those investors? For example, would you stop the sell-down if the discount reached a certain level?”

Noise around Tencent would be quietened by growing the rest of Naspers’s portfolio to a point where it is profitable or worth more than its Tencent investment. On profitability, the group is aiming to do this by the first half of the 2025 financial year. 

At last count, the group’s e-commerce assets were valued at about $32bn. 

The reported growth in Naspers’s e-commerce portfolio, excluding Tencent, is an encouraging sign of the group’s efforts to diversify revenue streams and reduce reliance on Tencent, Kamogelo Mosime, partnership manager at brokerage firm Tickmill, told Business Day.

“This growth suggests that Naspers is actively seeking opportunities to expand its e-commerce presence, which can be a positive driver for future profitability. However, the pace at which this growth is happening and its potential to achieve profitability within the next two years need careful evaluation.”

Mosime says monitoring the ongoing performance, growth prospects, and competitive landscape of both Naspers and Prosus is crucial, adding that understanding the risks and opportunities associated with Tencent and other key investments is essential for evaluating the long-term prospects of the group.

The bearish sentiment on the two companies came to a head on October 24 last year when the Naspers-Prosus stable saw combined losses of more than R432bn in one day of trading, sparked by news that Xi Jinping had secured a historic third term as China’s president, tightening his hold on the economy, which has shown hostility to investors for 18 months or so. Despite this volatility, SA’s largest publicly traded group remains bullish on its prospects in China.

gavazam@businesslive.co.za