EXPLAINER: Naspers is listing Europe's biggest consumer internet firm

After years of frustration with the massive discount between the Naspers share price and the value of its assets, investors will finally see some progress on Wednesday.

Brand-new company Prosus, which now owns all of Naspers’ international internet assets, will make its debut on the Euronext bourse in Amsterdam.

Its assets include Naspers' 31% stake in China’s biggest online platform Tencent, as well as its shares in the global online selling platform OLX, the Indian online food-delivery business Swiggy, the Indian online travel site MakeMyTrip, 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.

In South Africa, it owns AutoTrader and Property24.

Prosus will be Europe’s largest listed global consumer internet company, with more than 1.5 billion customers across 91 markets.  The products and services that will be owned by the new holding company are used by around a fifth of the world’s population.

Naspers will hold around 73% of Prosus (as well as Media24 and Takealot.com). The rest of the shares (around 27%) in Prosus will be allotted to Naspers shareholders.

prosus

Why is Naspers listing Prosus?

Three big reasons:

1. Naspers shares are trading far below what its assets are worth. Its stake in Tencent alone is trading at a value of R1.8trn – while the entire Naspers is valued by the market at only R1.55trn. So that means all its other businesses are being given a negative value. Naspers has historically traded at a discount of around 37% to the value of its assets, and it is hoped that the new listing will help to close that discount.

2. Many investment funds are not allowed to invest in the JSE because they are restricted to developed market bourses. Because Prosus will be listed in the Netherlands, they can buy shares there. (And funds that can only invest in emerging markets can still buy Naspers, which remains listed on the JSE, or buy Prosus, which will have a secondary listing on the JSE.)

3. Naspers is getting too big for the JSE. Because of its stake in Tencent, its market value has ballooned - Naspers is now ten times bigger than Absa, for example. Naspers represents 21% of JSE’s all share index. In other indices, Naspers can reach up to 25%. This is a big problem for pension funds and unit trusts. By law, many investment products are not allowed to invest more than 20% in one share. This makes it very difficult for, especially, index funds to track an index. Also, movements in Naspers distort the performance of the JSE. Following the listing of Prosus, Naspers should shrink to around 15% of the JSE.

What does it mean for Naspers shareholders?

All Naspers shareholders will be issued with new shares (Naspers M shares) – equal to a stake of around 27% stake in Prosus – on Wednesday morning.

These shares will be exchange into Prosus shares, or investors can opt to get Naspers N shares instead.

For South African investors who choose shares in Prosus, there may be an immediate capital gains tax charge.

Usually, it makes sense to defer paying capital gains tax for as long as possible, says Matthew Stroucken, portfolio manager at Anchor.

But he argues that investors should consider opting for Prosus shares because there is a strong possibility that the Naspers’ discount to its net asset value may widen over time. This is because Naspers will now be a double holding company - it will hold Prosus, which will hold Tencent - which could maintain its discount.

Also, Naspers will remain a dominant share on the JSE, which causes concentration problems on the local market.

Lastly, there is a strong risk that capital gains tax will rise in coming years. So the tax rate you pay now, may be lower than in future.

If you want Naspers shares instead of Prosus, you have to issue an instruction to Naspers (typically via your broker) before Friday 12:00. Otherwise, you will automatically get Prosus shares.

What is happening on Wednesday?

Naspers will list around 27% of its stake in Prosus on the Amsterdam bourse. This stake will be allocated to Naspers shareholders, who will be able to start selling right away, says Stroucken. "How much trade there will be is unclear and prices are likely to be volatile."

Prosus will start trading at a reference price – which is determined by taking the closing price of Naspers on Tuesday evening, converting it in euro and dividing it by the number of Prosus shares.

Fin24 is part of 24.com, which is in the Naspers-owned Media24 stable.