BEIJING, December 1 (TMTPost)— The largest shareholder of Tencent Holdings Ltd futher cut stakes in the past months to fund its buyback while pledging to maintain investments in the Chinese internet leader.

Credit：Visual China

During the six months ended September 30 2023, or the first half of the fiscal year 2024 (1H24), Prosus NV repurchased 57,616,849 ordinary shares N, around 2% of outstanding ordinary shares, on the market for a total consideration of US$3.9 billion, which was funded by the sale of 92,412,000 Tencent shares yielding proceeds of US$4.0bn, according to a statement of the Dutch technology investment company owned by South African internet group Naspers. Through the sales, Prosus reduced its ownership interest in Tencent from 26% to 25%. The buyback is such a benefit for shareholders that the Tencent stake is worth about 30% more than Prosus itself.

Prosus also disclosed it has stepped up offloading in the recent months. The company sold 26, 217,600 Tencent shares between October and 24 November 2023, yielding US$1.0 billion in proceeds, as it acquired 33,763, 633 its ordinary shares N for US$1.0 billion and Naspers acquired 2,608,759 its N ordinary shares for US$438 million in the same period, as part of the open-ended share repurchase programme. In addition to the aforementioned one-month further sales, Prosus has cashed out a total of US$5 billion since the start of April.

The statement showcased Tencent still plays a key role in Prosus’ bottom line. Core headline earnings from continuing operations surged 85% year-over-year to US$2.0 billion, or a 118% increase if comparing like-for-like, adjusting for currency fluctuations and business disposals. Prosus said the stellar growth was primarily due to improved profitability of its e-commerce consolidated businesses and equity-accounted investments, particularly Tencent, and an increase in net interest income during the period. The firm sold 1% of Tencent stakes to fund its open-ended share repurchase programme, resulting in a gain of US$2.9bn in 1H24 compared with a year earlier.

According to the statement, Prosus’ free cash inflow in 1H24 was US$645 million, a sizeable US$754 million improvement from the prior period. This was owing to improved profitability in Food Delivery and Classifieds, as well as better working capital management in Etail, and Payments and Fintech. Excluding OLX Autos, free cash inflow stood at US$725 million and Tencent remains a major contributor to its cash flow via a YoY increased dividend of US$758 million.

Prosus said its stakes in Tencent is expected to be lower than 25% by the end of the calendar year 2023, opening the door for more sales. Meanwhile, the Netherlands-based company reiterated bullish on Tencent. It called Tencent one of the best technology companies in the world and vowed to remain a significant shareholder, “reflecting our confidence in its leadership team to deliver value for shareholders.”  

Nasper spent US$32 million to acquire a 46.5% stake in Tencent back in 2001, three year before the WeChat owner went public in Hong Kong. The investment brought the media company a more than 700,000% profit in the past two decades. Prosus’ stock sale started more than a year ago. Naspers and Prosus announced on June 27, 2022 that they were going to sell Tencent shares orderly to fund a long-term open-ended buyback program, which would run as long as elevated levels of the trading discount to their underlying net asset value persist.

Naspers expected the on-market sale of Tencent shares would be just a fraction of the average daily traded volume of Tencent shares. For example, had Naspers and Prosus executed the repurchase program over the last three months within European regulatory limits, the Tencent Shares that would have been sold on a daily basis should be, on average, not more than approximately 3-5% of average daily traded volume.

Naspers and Prosus said in June 2022 that both of their boards had great confidence in Tencent’s long-term prospects. Prosus said the repurchase programme had been designed to manage the number of its shares and shares of its parent that will be repurchased, and Tencent shares that will be sold on a daily basis.

Prosus CEO Bob van Dijk said in July that his company expected to cut stakes in Tencent by two to three percentage points annually amid its ongoing buyback program, and to hold about 24% to 25% shares of the Chinese tech giant by the end of this year, down from holdings of 28.78% prior to an announcement of stake sales in June last year. The executive said Prosus  wants to stay long-term shareholders in Tencent, and holds bullish view on Tencent's business as well as China's consumer internet industry. He believes Tencent has less risk of scrutiny overseas than other Chinese firms since it focuses more on domestic business.