Naspers and Prosus to exit cross-shareholding

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South African internet group Naspers and its investment arm Prosus, which owns 26 per cent of China’s Tencent, will unwind a complex set of shareholdings in each other that had threatened to impede stock buybacks funded by sales of the Chinese tech group’s shares.

Naspers said on Tuesday that Amsterdam-listed Prosus would exit a shareholding in its parent that it acknowledged “is widely seen as negative by shareholders”.

Naspers and Prosus have been selling their Tencent stock as part of a years-long effort to reduce a share price discount that in effect gives no value to its portfolio of global internet assets.

But the company said investors believed the “cross-holding structure introduces excessive complexity” and “should be removed”.

Naspers and Prosus exchanged stock in 2021 to tackle another factor in the discount, Naspers’ outsized weighting on South Africa’s stock market that was forcing fund managers to sell its shares.

Naspers and Prosus chief executive Bob van Dijk said the cross-holding had been needed to resolve the “clearly unsustainable situation” of Naspers making up a quarter of the Johannesburg bourse, “but it’s true that shareholders didn’t like it” and its purpose was served.

The structure meant that South African company law was also emerging as an obstacle to the buybacks because of a limit on how many shares subsidiaries could own in their parent.

“At some point Naspers will actually hit that limit,” said Basil Sgourdos, chief financial officer of Naspers and Prosus.

Prosus reported on Tuesday that core headline earnings fell to $2.7bn in the year to the end of March, down from $3.8bn in the previous financial year, after weaker performance from Tencent. 

Prosus is seeking to drive profits in other businesses, which stretch from online payments in India to South American food delivery and ownership of Stack Overflow, the Q&A platform for software engineers.

The Naspers investment in Tencent, which was made more than two decades ago into what was then a fledgling Chinese start-up, is seen as one of the greatest venture-capital bets of all time.

Naspers will remain the controlling shareholder in Prosus through super voting shares, but said the removal of the cross-holding would better reflect economic interests in the investment vehicle, under which Naspers holds 43 per cent and other shareholders 57 per cent.

The cross-shareholding will be ended through Naspers and Prosus each issuing new stock to shareholders without taking up their own rights to these shares.