The placing of tech giant Tencent on the United States’ Department of Defence list of companies allegedly aiding the Chinese military has affected the net asset value of JSE-listed Prosus and Naspers while also shaving off some shine off the companies’ stocks.
The US yesterday announced that it had added Tencent to the Chinese Military Company (CMC) list, along with a few other Chinese companies such as CATL and Autel Robotics Co.
However, a presence on the CMC list has no legal ramifications according to analysts and a spokesperson for Tencent said there will be no commercial impact on the company as it has no commercial undertakings in the US.
Market watcher, Simon Brown, said in an interview yesterday that the placing of Tencent on the CMC list was “bad for the stock” but “less so actually for the company” commercially.
“They (Tencent) will also likely take it to court and that’ll take time. But takes serious shine of the share price,” he said.
A spokesperson for Tencent was quoted saying the development was “clearly a mistake” as it was “not a military company” or supplier.
“Unlike sanctions or export controls, this listing has no impact on our business. We will nonetheless work with the Department of Defence to address any misunderstanding,” explained Tencent.
However, Steve Minnaar, head of global equities at Abax Investments told Business Report yesterday that the impact of the placing of Tencent on the US Department of Defence list was “mostly financial” for Prosus and Naspers that hold 24% of the Chinese media and fintech company.
“Prosus/Naspers (effectively the same entity) owns 24% of Tencent, but have no management control. As such, the impact is mostly financial in that it affects their Net Asset Value (NAV),” Minnaar said.
“Whereas Tencent makes up about 80% of the NAV of Prosus, the rest being smaller investments in listed and unlisted businesses, Prosus trades at a 21% discount just to the value of Tencent alone and at a 39% discount to all their assets.”
Any negative sentiments attached to Tencent were set to have a material impact on the share price of Prosus/Naspers “as they are simplistically seen as a proxy” for Tencent.
In afternoon trade yesterday, Tencent traded 7.3% down in Hong Kong while Prosus and Naspers declined 8.4% to R680.91 and 8.3% to R3 772.84 per share, respectively, on the JSE.
This saw the JSE All Share Index easing by 0.6% to 84 217 index points as a result if the weight carried by both Naspers and Prosus on the local bourse.
“Putting this into perspective, the impact on the SA market is same as if Mr Price, Anheuser-Busch Inbev, or Aspen disappeared. Prosus and Naspers provides a deeply discounted entry into Tencent and some other, smaller investments, some also with good prospects whilst being debt free,” said Minnaar.
Although the effect of the decision by the US Department of Defence was more pronounced on sentiment and spooked investors, it seemed “to be but another round of more to come US sanctioning and/or interfering with Chinese businesses, using the military angle” as an excuse.
The US has increasingly shifted to an America first narrative, with analysts saying the placing of companies such as Tencent on the list was aimed at limiting the most successful of Chinese companies from competing outside of China.
In January 2021, the US Department of Defence added Chinese smartphone manufacturer Xiaomi to the CMC list. The company filed a complaint in a Washington District Court later that month against the department, and was removed from the CMC list in May the same year.
Last year, Advanced Micro-Fabrication Equipment Inc. was also removed, with the firm claiming the Department of Defence’s label as an “irrational” designation.
BUSINESS REPORT