• South African giant Naspers is radically restructuring, it announced on Monday.
  • Some of its most valuable holdings, including its shares in Tencent, will move to a new holding company.
  • Those assets will still be available on the JSE – but via a secondary listing.

Naspers on Monday announced that it is creating a new company that will hold all its overseas internet companies.

This includes its 31% stake in the Chinese giant Tencent, as well as its stakes in many other digital companies including the Indian online food-delivery business Swiggy and the Indian online travel site MakeMyTrip. Also included will be the global online selling platform OLX, as well as the biggest online classifieds and property platform in Russia, Avito, and Russia’s biggest internet company (with large gaming, social media and e-commerce businesses) mail.ru. 

Source: Naspers

Naspers expects the new group will be Europe’s largest listed global consumer internet company, measured by asset value. The products and services that will be owned by the new holding company are used by around a fifth of the world’s population.

The new company – still to be named, but for now known as  ‘NewCo’ – will have a primary listing on the Amsterdam bourse, but local investors will also be able to buy it via a secondary listing on the JSE.

Source: Naspers

Naspers stays on the JSE and will still own 75% of NewCo’s shares (as well as Media24 and Takealot.com). Some 25% of NewCo’s shares will be allotted to Naspers shareholders.

Why has the new company been created?

Naspers shares are trading far below what its assets are worth. Its stake in the Chinese digital behemoth Tencent Holdings alone is trading at a value of R1.9 trillion – while the entire Naspers is valued by the market at only R1.43 trillion.

That means that investors are getting its other assets – including its Russian and Indian companies – for free.

Depending on how you value these businesses, it means that the Naspers could currently be undervalued by between 20% to 40%, says FNB Wealth and Investment money manager Wayne McCurrie.

The new separately listed company will force the market to put a value on particularly the Russian and Indian companies – after Naspers spent a fortune on investing in these businesses,” says McCurrie.  This will bump up the value of Naspers.

NewCo will be a company with a clear focus on the internet, which he thinks the market will welcome.

Another reason: More global investment funds will be allowed to invest in NewCo than in Naspers, says Jean Pierre Verster, portfolio manager at Fairtree Capital.

Currently, because Naspers’ primary listing is in Johannesburg, funds that are only allowed to invest in developed market countries are barred from buying Naspers. NewCo’s primary listing in the Netherlands will allow them to invest in that group. (And funds that can only invest in emerging markets can still buy Naspers, which remains listed on the JSE, or buy NewCo, which will have a secondary listing on the JSE.)

Investing in euro will also remove any currency risk for those hesitant to invest in rand-based Naspers, says Schalk Louw, portfolio manager and strategist at PSG Wealth Old Oak.

“Naspers management is finally coming to the party in addressing the gap between the market value and Tencent and other technology assets, a gangster move that’ll realise significant shareholder value in the process if executed flawlessly,” says Vestact Asset Management’s Bright Khumalo.

“We welcome any initiatives to improve shareholder value, and we love Amsterdam as they are a favourable jurisdiction for technology companies. This will definitely be a better union between a South African corporate and Amsterdam than the last one,” Khumalo says, in reference to the embattled Steinhoff, which also had a holding company in the Netherlands.

Khumalo says there are more favourable tax rates for companies based in the Netherlands. He also believes Dutch regulators “understand technology” and that the European Commission antitrust body has proven itself more competent than its US counterparts. Given than there are more companies in the same space in the Netherlands, it should help to put a better price on NewCo.

What happens to Naspers?

The JSE-listed Naspers will in future hold 75% of NewCo as well as Media24 and the online retailer Takealot.com.

Over time, its holding in NewCo could be watered down, as that company may issue more shares to fund further internet-focussed expansion, says Louw.

What do Naspers shareholders get from the deal?

“NewCo’s free float is expected to be created by Naspers through a capitalisation issue of NewCo shares to Naspers shareholders. Shareholders will also be able to choose to receive more shares in Naspers instead of shares in NewCo, subject to certain limits,” Naspers said in a statement.

There is some uncertainty whether this means that all Naspers shareholders will end up with NewCo shares, says McCurrie.

If Naspers shareholders decide to hold onto their NewCo shares, that means there will be nothing much to trade with on the Amsterdam board, adds Louw.

Will it have an impact on the rand and the JSE?

Theoretically, global investors who invested in Naspers before can now completely bypass the local company and buy shares in Amsterdam-listed Newco.

This could affect the rand, as global investors won’t have to swap their dollars or euros to buy Naspers.

However, given that Naspers still holds 75% of NewCo, global investors may still have to buy the local company.  

The National Treasury and the South African Reserve Bank may have restricted Naspers from farming out more of NewCo to protect the rand and the local bourse, says Louw.

Listing a part of Naspers separately overseas will shrink the company’s weight in various indices, given that Naspers represents more than a fifth of the local bourse. However, given that NewCo will have a secondary listing on the JSE, the impact should even out, he adds. The impact should be far greater on an index like the MSCI South Africa Index seeing that only companies with a primary listing in South Africa are included.

The Naspers share price was down around 1% in intraday trade by early afternoon – but analysts pointed out that a bigger drop in the price of the listed Tencent suggested investors had actually reacted positively to the news of the planned spin-off.

Business Insider South Africa is part of 24.com, which is in the Naspers-owned Media24 stable.

The article has corrected a reference to Steinhoff's Dutch connection: The company wasn't listed there, but Steinhoff International founded a holding company in the Netherlands.

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