(Bloomberg) — Prosus NV plans to buy more of its $134 billion stake in Chinese internet giant Tencent Holdings Ltd. to fund a buyback program, where a promise to hold the entire shareholding is reversed.
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On Monday, Tencent wiped out earlier gains in Hong Kong as investors wondered how far Prosus, the Chinese company’s largest shareholder, will release its shares. The stock fell a whopping 2.5%, trading 1.8% lower at 3:20 PM local time.
“We will continue to sell Tencent shares to buy back our shares. It has an open-ended and unlimited program,” Prosus Chief Executive Officer Bob Van Dijk said in an interview. “It’s a small fraction of Tencent’s daily traded volumes — it should be between 3 and 5% at most.”
The move marks a change of heart from Dutch e-commerce giant Prosus – the majority of which is owned by South African Naspers Ltd. — who said it would stop selling shares for three years after its last sale in April 2021. The company, spun off from Naspers in 2019, owns a 29% stake after the parent company became an early Tencent investor more than two decades ago, earning multi-billion dollar returns in one of the most profitable early bets in tech history. Investments.
Prosus shares rose 12% in early trading in Amsterdam, the most since March, while Naspers gained 16% in Johannesburg.
Less than zero
Prosus is valued at 117 billion euros ($123 billion), even after the share jump, compared to its $134 billion stake in Tencent. This means that the market values the rest of the company’s assets, including food deliveries, travel bookings, and online education sites worldwide, at less than zero. This state of affairs has become “unacceptable,” the company said.
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Prosus announced the plan on the same day as the sale of nearly $4 billion shares in e-commerce giant JD.com Inc., received from Tencent as a special dividend.
The twin deals are rekindling concerns over the long-term viability of shares in Chinese internet companies, which are only just emerging after more than a year of unprecedented scrutiny from Beijing. While Prosus’ investment remains huge in the money, they are selling after Tencent lost about half its value since a peak in 2021, hammered by the government’s campaign to curb the power of its largest internet companies.
Prosus said it would manage the sale of Tencent shares in an orderly manner.
Read more: China’s Traumatized Tech Insiders Signal Danger to Market Rally
Prosus wants to focus on increasing the value of non-Tencent assets, Van Dijk said, while maintaining exposure to the Chinese company. The group is also looking for buyers for the Russian company Avito with classified ads following the sanctions imposed on the country after the invasion of Ukraine.
Investors are considering going back to Chinese internet stocks after a sell-off that began in 2021, which wiped out more than $1 trillion in market value at one point. Some analysts believe Beijing is more supportive of the critical industry, but Nasper’s announcement may dampen that somewhat.
Tencent said in a separate statement it supported its shareholders’ decision and expected a limited impact on the Chinese social giant itself.
“People are concerned about impending selling pressure on the stock, especially after it recently bounced back to nearly HK$400,” Steven Leung, executive director at UOB Kay Hian, said by phone. “It certainly clouded the short-term outlook for the stock.”
Read More: Tencent-Backer Prosus Offloads Nearly $4 Billion in JD.com Stock.
(Updates the bet values from the beginning.)
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