Tencent stock falls as Prosus/Naspers sell stock to fund buybacks

Tech investor Prosus NV will use its huge stake in China’s Tencent to fund a share buyback in itself and parent company Naspers, the Dutch firm said on Monday, screening shares in the Chinese tech giant.

The move aims to fill a gap between Prosus/Naspers’ market value and that of its 28.9 percent stake in Tencent, which is currently valued at about $136 billion.

Prosus itself is currently worth less than that stake at around €109.8 billion ($116.2 billion).

“This will bring immediate value to shareholders as we sell (Tencent) shares at full value and repurchase our shares at a significant discount,” said CFO Basil Sgourdos.

Prosus shares, which are down 27% year-to-date, rose 10% on the news to trade at 58.36 euros at 07:50 GMT in Amsterdam.

Shares in Johannesburg-based Naspers rose 13%, while shares in Hong Kong-based Tencent fell 1.5%.

“We will do this as long as the discount is at a high level,” Prosus/Naspers CEO Bob van Dijk said of the buyback plan, stressing that the process will be gradual, but there is no specific timeframe or size limit give for the sales .

As a rough guide, the company pointed to a maximum sell of 3-5% of the daily trading volume in Tencent shares.

“It’s a big bazooka idea to address a market inefficiency, but it also maintains our exposure to (Tencent) one of the best companies in the world,” said Van Dijk.

Van Dijk, the highest-paid manager in the Netherlands with a pay package worth $15.8 million last year, did not receive part of his bonus that was contingent on the valuation variance reduction.

The stock sale plan came as a surprise, as Prosus agreed not to sell any more Tencent shares after selling a 2% stake worth $15 billion in 2021.

Asked about this, Sgourdos said he didn’t think breaching the lock-up promise was an issue.

“We had to take that into account when making this decision. (But) we think this is the right thing to do for our shareholders. And you know, we have Tencent’s support in this decision.”

Tencent said it supports the move and expects the impact of the stock sale to be “limited.”

Separately, Prosus said it sold a $3.67 billion stake in JD.com.

Shares of Prosus and Naspers have fallen sharply over the past year amid a sell-off in the tech sector and a Chinese government crackdown on tech companies.

“The sale has no impact on Tencent’s operations or fundamentals,” said Vey-Sern Ling, senior analyst at Union Bancaire Privée.

“China’s improving regulatory environment is unlikely to be a major consideration.”

Sgourdos said the company remains committed to China.

“We still have very strong belief in Tencent and the Chinese economy and its ability to grow,” he said.

Investors say the complicated cross-holding structure between Prosus and Naspers has also hurt their share price.

Along with Tencent, Prosus hosts all of Naspers’ overseas investments in online classifieds, grocery delivery, fintech, and educational software — though Tencent’s influence dwarfs the performance of the others.

Both companies reported a decline in trading profit from non-Tencent stores for the full year ended March 31 as they grew sales but increased losses.

“Results were better than we expected in terms of sales but lower in terms of profitability,” said Marc Hesselink, an analyst at ING Bank, in a statement.

Prosus’ current discount to the value of the assets it owns is 54% and Naspers’ 65%, according to figures provided by the company.

Prosus is in talks to sell its stake in Russia’s Avito, which was valued at $6 billion before the Ukraine war.

https://www.cnbc.com/2022/06/27/tencent-stock-falls-as-prosus/naspers-to-sell-shares-to-fund-buybacks.html Tencent stock falls as Prosus/Naspers sell stock to fund buybacks

Joshua Buckhalter

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