The dominance of Naspers over the South African stock market is about to be reduced — partially at least. And that’s good news for a number of fund managers concerned about the tech giant’s weighting in the main local index.
After Naspers lists its unit Prosus in Amsterdam on 11 September, the company will drop to about 15% of Johannesburg’s equities benchmark from a massive 21% currently, Peter Takaendesa, a Cape Town-based fund manager, estimates. The role Naspers plays in the widely tracked Shareholder Weighted Top 40 Index, known as the Swix, is even more exaggerated, at about 25%. That should fall to around 18%, he said.
South African managers who passively follow the Swix are typically prevented from having more than 20% of their fund invested in one stock, meaning they can’t fully replicate moves in Naspers and often have to sell when the share does well and busts through their thresholds.
“So, a lower weighting helps a bit with the concentration risk, giving investors some breathing room,” said Takaendesa, whose Mergence Investments oversees about R35-billion for clients.
Prosus, which will house Naspers’s 31% stake in Chinese Internet colossus Tencent along with several other technology investments, should be valued at around US$100-billion when it starts trading in Europe, the Cape Town-based company estimates.
The move to carve out Prosus may have less-positive implications for exchange operator, the JSE, said Olwethu Notshe, a money manager at Sentio Capital.
“In the longer term, because foreigners don’t have to access Tencent via Naspers on the JSE, it could result in lower activity, as foreigners will likely be more active on the Amsterdam bourse to access Tencent,” Notshe said. He expects Naspers’s benchmark index weighting to fall by 3.5 percentage points.
Weighting
Anchor Group, a Johannesburg money manager overseeing R38-billion for clients, expects Prosus to have a 3.1% weighting in the Swix, with Naspers dropping to 20.8% from 25.8%. The Swix adjustments will take effect on 20 September, it said.
The Johannesburg exchange declined to give any estimates of the change in Naspers’s weighting or a date when the re-weighting would happen.
Naspers will keep a stake of at least 73% in Prosus, which will be the third-largest company by market capitalisation in Amsterdam. Prosus is likely to be added to developed market indices and may attract investors prevented from holding Naspers because it trades on an emerging market exchange.
“If developed markets investors like Prosus, the spin-off of the company will help narrow the discount between the firm and its underlying assets from the current 35%-40% range, which will benefit Naspers shareholders over time,” Takaendesa said.
The listing of Prosus is likely to be just one step in a long-term process to reduce Naspers’s outsized influence over the JSE, he said. “Over time, I think it is possible that e-commerce assets could be taken out of Prosus as they become more profitable, which then further reduces the size of Naspers.” — Reported by Adelaide Changole, (c) 2019 Bloomberg LP
