Prosus' dual listing creating problems for the JSE
CAPE TOWN – The Euronesxt listing of Prosus was punted as a way to reduce Naspers’ weighting on the JSE, but the Prosus dual listing has created similar problems for the JSE’s capped indices.
To resolve the problem, the JSE suggested a first-in-the-world solution to solving the problem of its capped indices being overweight of Chinese internet firm Tencent through Naspers, and also through Prosus.
The reason indices are capped is to reduce single stock exposure.
“In this context, there may be a proposal that Naspers and Prosus are treated as a single entity for index capping purposes, despite them being two separate listed entities,” the JSE said in a statement yesterday.
Various market participants have expressed concern about the combined weight of Naspers and Prosus in the FTSE/JSE capped indices, specifically the capped SWIX All Share index, which has become a benchmark for local equity funds in South Africa.
As at March 31, Naspers’ 31.1 percent interest in Tencent was worth some $136.2 billion (R2.02 trillion) and Naspers had a reliance on Tencent for 79 percent of its revenue.
Naspers holds a 74 percent majority stake in Prosus.
“A holding in Naspers effectively provides a synthetic holding in Prosus, and this should be taken into account when restricting access to single instrument exposure,” the JSE said.
“Treating Naspers and Prosus as one entity for capping purposes only in the FTSE/JSE capped indices, would alleviate the single large exposure risk to Tencent,” the JSE said.
A rule would need to be constructed to resolve any future large single stock exposures, “by looking at how much the valuation of the subsidiary company holding contributes to the parent company's gross market capitalisation.”
The JSE said its proposal to treat Naspers and Prosus as one entity for capping purposes would have no impact on any of the uncapped indices in the FTSE/JSE Africa Index series, and it would not impact the way that companies were selected for index inclusion purposes.
“The core objective of this proposal is to improve the quality of the capped indices in the series as a benchmark for local equity funds.”