Tech investment group Prosus to sell 2% stake in Tencent for increased flexibility

SOUTH AFRICATechnology investment group Prosus, a unit of consumer Internet company Naspers, has announced its intention to sell more than 191 million shares, or 2 percent of its shares in tech behemoth Tencent  valued at about US$15 billion  as it seeks further acquisitions for growth amid Covid-19.

Prosus will reduce its stake to 28.9 percent from 30.9 percent in Chinese tech giant Tencent and intends to use the proceeds of the sale to increase its financial flexibility to invest in growth sectors and for general corporate purposes.

Naspers also sold 190 million shares in Tencent in March 2018, worth US$10bn, to reduce its stake in Tencent.

Prosus chief executive Bob van Dijk said the Covid-19 pandemic had accelerated digital transformation across the group’s growth sectors, mainly online classifieds, food delivery, payments and fintech, education and e-commerce.

“The proceeds of the sale will increase our financial flexibility, enabling us to invest in the significant growth potential we see across the group, as well as in our own stock,” Van Dijk said.

Van Dijk told the New York Times in a “Dealbook” interview published this weekend: “It’s easier to do acquisitions in a market that is cooling off.”

Amid Covid-19, consumers globally have flocked online, changing their purchasing behaviours, which Prosus is betting on.

“Research indicates that new habits formed now will endure beyond this crisis, permanently changing what we value, how and where we shop, and how we live and work,” according to consulting firm Accenture.

In 2020, Prosus began a US$5billion buyback of its shares as well as Naspers shares.

“The proceeds of the sale will increase our financial flexibility, enabling us to invest in the significant growth potential we see across the group, as well as in our own stock”

Bob van Dijk – Chief Executive, Prosus

Peter Takaendesa, the head of equities at Mergence Investment Managers, told IOL that the proposed transaction was similar to the 2018 transaction in terms of the 3-year lock-up period and the 2 percentage points reduction in their Tencent shareholding.

“However, the gross proceeds will be close to US$15 billion this time compared to US$10 billion in 2018 as Tencent shares have performed very well since then.

“While the transaction is largely in line with Prosus’s long-term strategy to diversify its earnings by reducing Tencent’s dominance through accelerated growth in other internet assets, we suspect that some investors are not happy with reducing exposure to Tencent in order to fund currently loss-making non-Tencent investments,” Takaendesa said.

He said investors preferred that any proceeds from the disposal of Tencent be applied more towards buying back Prosus and Naspers shares that were currently trading at huge discounts to the value of their underlying assets.

Nesan Nair, a senior portfolio manager at Sasfin Securities, said the sale represented a value unlock, even though it was quite small.

“I think the slide in Prosus’s share price this morning has more to do with the 3.75 percent drop in the Tencent price overnight. However, the Prosus share price should recover and the offering would have been received much better by the market if it were not for the fall in the Tencent price,” Nair said.

Stephen Meintjes, the head of research at Momentum Securities, said: “The share price movements in Prosus and Naspers may simply be reflecting the movement in their major investment in Tencent, which will remain dominant even after the sale of a further 2 percent … It is likely that European investors in Prosus were strongly motivated by the opportunity to buy a chunk of Tencent at a huge discount rather than the prowess of Prosus and Naspersinternet investments despite their improved showing of late, but that still remains to be seen,” Meintjes said.

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