Since taking the helm at Naspers, part of a cross-holding entity with Europe’s biggest internet company, Prosus, Bob van Dijk has consistently come under pressure for holding a stake worth hundreds of billions of rand in Tencent.
But it is not like the pressure he saw this week. Shares in Prosus, which owns about 29% of Chinese internet powerhouse Tencent, crashed more than 15%, its biggest one-day fall yet. Naspers, which shares the same board with Prosus, slumped 17%. That wiped off more than R430bn in combined value of the two companies, the shares of which are widely held by fund managers, pension funds and mutual funds.
The negative sentiment came on the back of resurgent concerns about the fate of foreign investments in China. At the weekend, Xi Jinping secured a historic third term as the Asian country’s president, tightening his hold on the economy and rightly sending investors fleeing because his leadership has over a year-and-a-half shown brutal signs of hostility towards investors.
Xi has reined in the power of China’s big internet firms like Tencent with new rules supported by huge financial penalties, and launched a regulatory campaign against the private sector-dominated property industry. Who can forget how changes to the rules in 2021 effectively trashed the commercial logic of listing Jack Ma’s Ant Group.
The widening series of regulatory assaults started in 2020 following the Communist Party politburo’s vow to keep “disorderly expansion of capital” under control. And with slogans like “common prosperity” as China seeks to narrow in 15 years a yawning wealth gap that threatens the legitimacy of Communist Party rule, it makes sense that investors reacted with anxiety at the re-election of Xi on Saturday.
What we saw in the stock market on Monday is, in fact, the extension of market rout that started in 2021 when it became clear that there is a chance that wealth tied up in Naspers-
Prosus could be wiped out with the stroke of a pen in Beijing.
The onslaught saw Prosus lose its spot as the biggest company by market value on the JSE earlier in 2022. Once worth R4-trillion, the combined value of Naspers and Prosus is now about R2.28-trillion.
The biggest worry for money managers in SA and abroad with the re-election of Xi is that he has enough control of the ruling party to accelerate an intellectual shift that is showing worrying signs that economic growth might be sacrificed for ideologically driven policies. He has stacked the seven-man politburo standing committee, which will determine the path of the country’s development in the next five years, and the broader 24-man politburo with loyalists.
Aside from cementing China as an autocratic state, it should worry Van Dijk and chair Koos Bekker as much as it does investors. Bekker’s bet in the early 2000s on what was then a little-known start-up has made him a billionaire.
One thing that keeps coming up in China’s effort to keep the “disorderly expansion of capital” in check is an opaque corporate structure called a variable interest entity, which is used by many companies to sell shares to foreign investors. Given that China is wary of foreign investors in key sectors, investors have cause to worry that the variable interest entity structure in sensitive sectors could be in the firing line.
Prosus, which has its primary listing in Amsterdam, owns its R1.3-trillion stake in Tencent via a variable interest entity set up for Hong Kong listing purposes to allow foreign investors to buy into the biggest tech company in China.
Beijing has neither condoned nor explicitly repudiated the structures, which allow investors like Naspers to receive dividends from the mainland company while having no legal claim on its assets.
While China made some savvy SA investors millionaires and cemented Bekker’s name in the history books, the road ahead looks rough.
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