Naspers Amsterdam foray eases pain for South African fund managers

[NAIROBI] The dominance of Naspers Ltd 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 NV in Amsterdam on Sept 11, the company will drop to about 15 per cent of Johannesburg's equities benchmark from a massive 21 per cent 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 per cent. That should fall to around 18 per cent, he said.

South African managers who passively follow the Swix are typically prevented from having more than 20 per cent 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 Mr Takaendesa, whose Mergence Investments oversees about 35 billion rand (S$3.27 billion) for clients.

Prosus, which will house Naspers's 31 per cent stake in Chinese Internet colossus Tencent Holdings Ltd 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 JSE Ltd, 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," Mr Notshe said. He expects Naspers' benchmark index weighting to fall by 3.5 percentage points.

Anchor Group, a Johannesburg money manager overseeing 38 billion rand for clients, expects Prosus to have a 3.1 per cent weighting in the Swix, with Naspers dropping to 20.8 per cent from 25.8 per cent. The Swix adjustments will take effect on Sept 20, 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 per cent 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 per cent range, which will benefit Naspers shareholders over time," Mr 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 Johannesburg stock exchange, 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."

BLOOMBERG