Naspers’s high-voting A shares, which control 68% of Naspers votes and are not traded on the JSE, once again ensured that all of the resolutions at Wednesday’s AGM were passed – despite hefty opposition from the N shareholders.

The A shareholders voted 100% for each of the resolutions put to the meeting. N shareholders were much more discerning in their support: As in previous years the remuneration policy and the implementation report received limited support from the N shareholders, with just 34% backing each of the pay-related resolutions.

This continued weak support comes despite the Naspers remuneration committee stating that it had made improvements to address shareholders’ concerns.

One shareholder who attended the meeting said the sustained opposition was because neither the policy nor the implementation report reflected the reality of the limited responsibility of the executives involved.

And in what could be a JSE record, the approval for a general authority to place unissued shares under the control of the directors received support from just 14.62% of the N shareholders.

Further opposition

Other resolutions that did not do well included approval of general issue of shares for cash (with just 50.97%) and the reappointment of Steve Pacak (57.4%), while the reappointment of PwC, which has been Naspers’s auditor for over 100 years, got the backing of just 63.7% of the N shareholders.

During the meeting, shareholders were told that it is too early to judge whether or not the recent complex multibillion-rand Naspers/Prosus share swap has been a success.

Naspers chief financial officer Basil Sgourdos was responding to an investor’s concerns about the transaction’s apparent lack of success in achieving key objectives of the transaction.

The investor, Stonehage Fleming, which manages over £45-billion in assets across the globe, said that one of the key justifications given by management for the share swap and a key reason for the widening discount at both the Prosus and Naspers levels was Naspers’s concentration in key JSE indices.

“Post the completion of the deal and the subsequent index rerating and downrating of Naspers, we’ve seen a material further widening in the discount at both Prosus and Naspers. What is management’s take on this?” asked Stonehage Fleming.

Sgourdos acknowledged that the discount had widened shortly after the transaction but added that this should be seen in the context of a lot of volatility.

“There’s been significant index moves so volumes have been elevated and there has also been volatility around China; we really need to take a long-term view here and allow the share price to settle and allow shareholders to settle and in time reassess,” said Sgourdos.

He added that the board remains confident that it was the right transaction. “What it effectively does is reduce Naspers’s size on the JSE, which was unsustainable. Naspers was 24% of the index before the transaction, which elevates the pressure (on shareholders); hopefully over time it starts to have a positive impact.”

Ratio

One institutional analyst said shortly after the AGM that the Naspers share price would have to strengthen significantly ahead of the Prosus share price if there is to be any hope of improving the discount to Tencent.

“The Naspers/Prosus ratio today is 1.94 times; ahead of the share swap the ratio was 2.19 times, and the swap was pitched at a ratio of 2.27. Once all of the funds have balanced their long and short positions, the ratio could settle at around 2-2.05 times; and once it settles at that sort of ratio we can check the Tencent discount,” said the analyst, adding that anything below two times would point to a widening of the Tencent discount.

Stonehage Fleming also raised concerns about the recent uncertainty of Chinese government policy towards that country’s technology giants. It asked how Prosus management assessed the risk that Beijing would take action against the VIE (variable interest entity) structure that underpinned Naspers/Prosus’s investment in Tencent and how the regulatory environment in China impacted the investment case for Tencent.

Director Charles Searle told the meeting that the VIE structure, which he described as “pioneering”, had enabled Chinese companies to attract foreign investment capital and had played a crucial role in the development of the Internet in China.

The structure enables foreigners to side-step Chinese regulations that prohibit foreign investment in several sectors (including tech) of the Chinese economy. “The importance of the role they play continues to be widely acknowledged in China,” said Searle.

He added that the situation is monitored at a shareholder and company level. “Certainly we are not aware of any proposed change that might be in the pipeline in relation to VIEs.”

On the issue of the recent regulatory moves directed at China’s big tech companies, Searle told the meeting that Tencent has publicly stated its intent to be compliant. “This is in line with its longstanding operational philosophy which is to ensure compliance wherever needed, and of course we’re confident Tencent can navigate these changes.”