Everyone should have Naspers's troubles. The share is up 33% for the year to date while the JSE's all share index is down 5%. Its Amsterdam-listed subsidiary Prosus is up 20% against that market's 10% decline. The global consumer internet group has made a lot of money for its shareholders. It could have made them a lot more had it been able to narrow the discount at which the shares trade to the sum of its underlying parts. But more than a year after the complex deal in which Naspers listed 73%-held Prosus, the discount is worse than ever, with the Naspers share this week trading at a 53% discount and Prosus at 34%.
What's more, the creation of Prosus to house Naspers's international assets has not solved the structural problem at the heart of the discount - Naspers's dominance of the JSE. The share's huge outperformance has seen it jump to well over 25% of the value of the JSE's Swix index, from the low of around 18% to which it fell at the time of last year's listing.
And that dominance is as much about the JSE itself, and about SA's economy, as it is about Naspers or Prosus. True, the Covid pandemic has seen big-tech stocks soar everywhere, at a time when "old economy" stocks have crashed, and the JSE is not the only exchange where tech has pulled far ahead of the rest. But in the JSE's case the problem goes deeper, to a stagnant and sclerotic economy, which is reflected in an equities market that was pretty anaemic long before Covid. A growing equities market needs a growing economy, and SA doesn't have one. It's not generating too many of the kind of entrepreneurial companies that would scale up and go to the JSE to raise capital, especially in a market like this. Nor is the economy dynamic enough to shift from manufacturing and mining to innovative "new economy" players on any scale.
Its dominance of the JSE puts a cap on how many Naspers shares local fund managers and investors such as pension funds can hold. Especially after the Prosus listing was added, many already hold more than they ideally should in terms of keeping their portfolios prudently diverse - and that creates constant selling pressure. Ironically, there often is selling pressure from foreign investors too, because when international markets are "risk off" and foreigners are disinvesting from South African equities, Naspers is such a large component of the index that they have to sell chunks of it too - even though when you buy Naspers, you're really buying its 31% stake in Tencent and getting the rest (including local assets such as Takealot, relatively tiny as they are) for nothing, or less.
Naspers created Prosus and went to Amsterdam in an effort to address that issue. It has brought in new European investors, as planned, and more will follow after its inclusion in the benchmark European Stoxx 50 index earlier this month. But the bottom line is it hasn't succeeded. One year on, it is under pressure again from investors to do something about the discount - and its leadership has made it clear that it wants to.
But how? Further reducing the stake in Tencent is said to be off the table given undertakings the then CEO Koos Bekker is believed to have given the Chinese when the group bought the stake two decades ago. Reducing Naspers's 73% stake in Prosus clearly is an option, but there are tax implications. And then there are its non-Tencent internet assets across the globe - in food delivery, classifieds and payments - that the group is working to get investors to value more highly.
In the end, the best and most durable solution would be a brave new world in which SA had a dynamic economy and a dynamic equities market. In the meantime, however, at least local investors such as pension funds that must invest in local equities have the "Tencent twins". Without them our pension money would be worth a lot less.
*Joffe is contributing editor
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