THE LEX COLUMN: Naspers and Tencent: the odd couple
The SA group is sensible to decant its international investments into an Amsterdam vehicle it will control
The boss of SoftBank admits some investors think of a “Masayoshi Son discount” when trying to value the Japanese tech group. By that token, Naspers must have a “Koos Bekker discount”. A powerful founder looms large at the SA group, too. Listing a big chunk of a portfolio valued at more than $150bn in Amsterdam should help narrow the gap. Big problems will remain.
Naspers’s investment in Chinese internet giant Tencent transformed it from an unknown publisher to a tech specialist. The parallel with SoftBank, a pioneering backer of Alibaba, is inescapable. Both were early investors in small Chinese companies and were handsomely rewarded.
The problem born of this success is persistent discounts. These valuation gaps reflect conglomerate structures and corporate governance weaknesses. Son seems to call all the shots at SoftBank. Naspers is controlled by two opaque holding companies reportedly linked to Bekker and other bosses.
The Johannesburg-quoted shares of Naspers give it a worth of R1.4-trillion ($98bn). That is about 37% below the value of its quoted stakes, added to an estimate for unquoted investments from Citi. SoftBank complained of a gap of 56% in February.
Naspers has a stronger balance sheet than SoftBank. It raised $9.8bn last March by cashing in a 2% stake in Tencent. This has left it with net cash. SoftBank had net debt at $96bn as of last year. Naspers looks like a riskier proposition otherwise. The companies it wholly or partly owns make nine-tenths of their revenues in emerging markets such as China, India and Brazil. Tencent aside, most of these groups are not household names. SoftBank’s $100bn Vision Fund has better exposure to developed markets through well-known groups such as WeWork, Slack, Uber and Grab.
Naspers is sensible to decant its international investments into an Amsterdam vehicle it will control. It should lure minority investors wary of SA political and currency risks. It will reduce the weighting of Naspers back home, where it accounts for a quarter of the local index.
Do not expect that hefty discount to disappear overnight. For that to happen, Naspers would need conventional governance, transparent reporting and a broader spread of big, successful investments. The challenges facing SoftBank as it markets Vision Fund II are just the same.
© The Financial Times Limited 2019