This Western Investor Plans to Stick to China Despite Global Tensions CEO of Amsterdam-listed firm says it plans to stay a long-term investor
Prosus, the biggest shareholder of Tencent Holdings, is one of the last foreign investors holding a big stake in a major public Chinese company, even as others scale back their exposure to China. The Amsterdam-listed investment company’s CEO plans to keep it that way.
Prosus currently holds about 26% of Tencent, a stake valued at roughly $112 billion. The company, which has been slowly selling its stake to fund a buyback, said it expects its Tencent stake to shrink 2 to 3 percentage points a year while the buyback continues, ending this year around 24% to 25%.
“We want to stay long-term shareholders in Tencent,” Prosus Chief Executive Bob van Dijk said in an interview with The Wall Street Journal, adding that the company is confident about Tencent’s business and bullish about China’s consumer internet industry. The sector appears to be reaching the end of Beijing’s more than two-year-long regulatory clampdown.
The European investment company has ridden Tencent’s stocks through ups and downs in recent years. Tencent’s market cap neared $1 trillion in 2021, but has since lost more than half its value.
Prosus’ CEO also said Tencent’s business is domestically focused and therefore less likely to come under scrutiny overseas. “What they do is much less vulnerable to tensions than other companies,” he said. “It’s not as if they’re selling hardware to the U.S.”
Similar to SoftBank Group, which led a $20 million investment round in Chinese e-commerce company Alibaba Group Holding in 2000, Prosus’ parent Naspers paid $34 million for its original one-third stake in Tencent in 2001. Since then, Tencent has become the world’s biggest videogame company by revenue. It also operates the popular messaging app WeChat.
Recently, SoftBank exited much of its onetime more than 30% stake in Alibaba after many of its investments in startups went sour during a tech downturn.
Other early believers in China, especially those who have made billions by investing in the country’s decadelong internet boom, have become more defensive. They have scaled back investments or, in one case, separated their China investments from U.S. ones.
Longtime China investor Tiger Global Management hit pause on investing in Chinese equities late last year, the Journal reported. Still, Tiger said in its annual letter to investors that it is watching for investment opportunities after China exited its pandemic policies, even as it maintains “a high bar for exposure to China,” according to people familiar with the firm.
Sequoia Capital said in June that it would separate its China and U.S. businesses as the firm has come under increasing pressure from officials in Washington over its China business.
Prosus has additional reasons to stick with Tencent and pare its stake slowly.
The investment company is majority-owned by Naspers, a firm based in Cape Town, South Africa, that focuses on consumer internet businesses such as e-commerce, online payments and food delivery.
Prosus and its parent count on dividends from the Tencent stake. It isn’t easy for Prosus to find an investment opportunity as good as Tencent, said Kenny Wen, an analyst at asset manager KGI Asia in Hong Kong. “Without the profit contribution from Tencent, its bottom line looks disappointing,” Wen said.
In June 2022, Prosus said it would slowly sell its Tencent shares to fund buybacks of its and Naspers’s shares, scrapping a promise that it wouldn’t sell stock in Tencent until 2024. The move was aimed at helping address a valuation gap between Prosus and the value of its stake in Tencent.
Tencent’s market capitalization is equivalent to about $430 billion. Prosus’ stake in Tencent, valued at roughly $112 billion, is more than the entire market capitalization of Prosus, equivalent to about $95 billion. That is despite a net asset value, based on Prosus’ listed assets and consensus from 17 analysts for unlisted assets, of $146 billion.
The Naspers and Prosus buybacks don’t solve the structural issue of the discount, but they give shareholders value by purchasing stock at a discounted price relative to the actual value of the Tencent stake, Prosus executives say.
A spokesperson for Tencent said the number of Tencent shares Prosus sold as part of the buyback accounts for a fraction of its average daily traded volume.
Prosus’ stake in Tencent dropped to the current 26% from roughly 29% when it announced the buyback program. Before that, the European investor cashed out about $25 billion from its Tencent investment in 2018 and 2021.
“We love it,” van Dijk said of Tencent.
Write to Alexandra Wexler at alexandra.wexler@wsj.com and Raffaele Huang at raffaele.huang@wsj.com