Time for Naspers to sell Tencent – Paul Theron

Paul Theron said it is time for Naspers and Prosus to dispose of their Tencent stake amidst uncertainty in the Chinese market.

Theron is the founder and CEO of Vestact, a Johannesburg private client asset management firm, and a regular commentator on the global technology sector.

His comments followed a big decline in Naspers’ share price on Monday after the news that Chinese President Xi Jinping secured an unprecedented third term as leader.

Jinping’s third term broke from tradition and the historical precedent of a two-term limit, making him the longest-serving leader since Mao Zedong.

The Chinese president surrounded himself with loyalists, raising concerns that policies which hurt mega-cap tech companies would remain.

Chinese tech giants, including Tencent, Alibaba, JD.com, and Baidu, saw their shares hammered on the news.

Tencent was down 14% on the day, which caused Naspers and Prosus to follow suit because of their exposure to the company.

Apart from concerns regarding Xi Jinping’s third term in office, Theron said the Chinese demographics look awful.

“China is running out of young people and workers. The idea that they are going to overtake the United States and become the world’s biggest economy is unlikely,” he said.

“The economic dynamism is gone, and China’s GDP growth, which was bolstered by capital spending and infrastructure building by the government, is suspect and starts to look thin.”

Time for Naspers to sell its Tencent stake

Theron argues that developments in China change the thesis that it is a market where people should invest a large part of their money.

Chinese funds have performed dismally. Tencent is down 50% over the last three months, and Alibaba is down 45% year-to-date.

“It appears that Xi Jinping couldn’t care less about the performance of entrepreneurial companies. It is not a good situation,” Theron said.

He argues that it is time for Naspers CEO Bob van Dijk to accelerate the sale of Tencent shares as it closes the discount between the share price and the net asset value.

“Tencent is down 50% in three months, but Naspers and Prosus are only down a third in three months.”

“It is because they have been selling Tencent shares and using the cash to buy back Naspers and Prosus shares.”

“It may be time to call it quits on the Chinese investment, turn it into cash, buy other companies with the proceeds, or even return it to shareholders.”

The Naspers management team may have realised that they have to exit Tencent. However, there are challenges.

“Naspers still own nearly 30% of Tencent. Whom are they going to sell it to?” Theron asked.

Theron is not alone. Sasfin Securities’ David Shapiro also said getting out of Naspers makes sense.

He said with Jinping having full control over China, and in effect, companies linked to the Chinese economy, it carries too much risk to invest in the country.