Prosus CEO exit leaves Tencent elephant in room

Bob van Dijk is passing an unsolved problem to his successor. The chief executive of Prosus PRX, Tencent’s 700 biggest investor, said on Monday he was stepping down. Interim CEO Ervin Tu can suggest more asset sales to boost shareholder returns. But without a plan for his company’s 25% stake in the $380 billion Chinese e-commerce behemoth, Prosus shares’ discount to the value of their underlying assets will remain the elephant in the room.

Prosus is an $80 billion Amsterdam-listed vehicle controlled by South Africa’s Naspers NPN, since a 2019 spinoff. The Tencent stake that it owns made up about 75% of the group’s $130 billion portfolio value as of Sept. 15. The rest of Prosus’s valuation derives from a roughly 30% stake in $8.5 billion Delivery Hero, plus a mix of listed and unlisted technology startups operating in emerging markets such as India and Brazil.

Van Dijk’s perennial problem was that Prosus shares used to stand at a 60% discount relative to the value of its listed Tencent shares and other assets. One of the reasons why it persisted was the huge tax bill that would get triggered if he tried to sell the stake entirely. His workaround was to instead sell little chunks of Tencent shares, and use the proceeds to buy back Prosus stock. A tweak to Naspers and Prosus cross-shareholdings in June also saw the discount fall to 40%, based on share prices on Sept. 15 and the company’s portfolio tracker.

Still, the gap reflects shareholders’ ongoing struggles to value Prosus. Investors are better off buying Tencent shares directly. Neither Prosus nor the 50-year-old van Dijk gave a reason for his exit, but the persistence of the discount won’t have helped.

It’s not obvious Tu will have any more luck. The former SoftBank Vision Fund and Goldman Sachs GS dealmaker can suggest more spinoffs of unlisted assets such as Brazilian food delivery firm iFood and India-based payment startup PayU, on the basis that SoftBank’s Arm ARM float may suggest the IPO market is recovering. He can also keep launching buybacks or paying dividends to shareholders to boost returns. But without a concrete plan for the Tencent stake, the discount will remain.