Naspers Unbundles

The Money Market


During September, company news included the listing of Naspers spin-off Prosus. This has impacted both investors and benchmarks as ‘concentration risk’ has to be largely considered. The old investment quote: “Do not put all your eggs in one basket” has raised its head. Prosus, now an international online asset company of Naspers, has been listed as a new company. However, it is still linked as a part of Naspers. This has potentially increased concentrated exposure to single company-specific risks.

What does unbundling actually mean?

When a company listed on a stock exchange unbundles, it simply means that products or services that were once packaged together are now being separated. This usually happens within companies that have more than one line of business, product lines, subsidiaries or divisions. Unbundling takes place to stimulate company growth and competition.

What does the unbundling of Naspers mean for the benchmark and investors?

The South African media group, Naspers, listed Prosus as the new company that holds Naspers’ online assets. Naspers holds the biggest weight in the FTSE/JSE All Share Index. This index is the main measure used to explain the performance of the South African stock market. The unbundling event of Naspers can have a large impact on the way investor’s portfolios are constructed. When a portfolio is constructed, a benchmark is chosen to describe the underlying composition of the portfolio. The portfolios benchmark also tracks how it over-or-under-performs, this explains how a portfolios is truly doing in regard to return generation. This move by Naspers will impact the most commonly used indices as portfolio benchmarks. This in turn will influence institutional investors, such as retirement funds, as well as individual investors.

What is the impact of this inside the various benchmarks?

MSCI South Africa Index

The MSCI South Africa Index is generally the preferred benchmark for foreign investors into South Africa. It only contains companies with primary listings. This means that by Naspers unbundling, Prosus became a secondary listing of Naspers and cannot be included in this index. Naspers’ holding in this index shrunk from 34% to 25%. This decreased concentration exposure to company specific risk.

FTSE/JSE Swix All Share Index

This index came into play in 2004, it is a shareholder weighted index. The separated index weighting of Prosus and Naspers is 3.3% and 19.2%respectively, a total of 22.5% of the index. Before the unbundling Naspers, as one company it made up 26.2% of the index. By unbundling there was a reduction in the overall index weighting. This decreased concentration exposure to company specific risk.

FTSE/JSE Capped Swix All Share Index

To avoid excessive concentration, this index was created in 2016. It is designed to reduce the weight of one share, namely Naspers. Many South African pension funds and other investors subsequently changed their domestic equity benchmarks from the FTSE/JSE Swix All Share Index (‘Swix’) to the FTSE/JSE Capped Swix All-Share Index (‘Capped Swix’). This means that the unbundling has increased the overall exposure to Naspers in the index.

How DOES THIS impact different types of investors?

Retirement funds

The FTSE/JSE Capped Swix All-Share Index is the most commonly used benchmark by South African retirement funds. Retirement fund trustees need to consider that the unbundling of Naspers and the listing of Prosus has led to an increased concentration risk to Naspers as a single company.

Index-tracking portfolios

Investors have been increasing their fondness of index tracking portfolios. This leaves investors exposed to the stocks as well as their index weighting. Depending on the index-tracker chosen, this unbundling would have impacted the volatility and performance.

Offshore exposure

For investors referencing the Capped Swix All-Share Index, the unbundling has resulted in a higher exposure of almost 4% to Chinese stocks via Prosus. Therefore, investors looking for increased offshore diversification will benefit from the change. However, investors concerned about balancing local and offshore assets because their expenses are in rands need to be aware of the additional offshore exposure.

-Sybrand Engelbrecht and Kheara Kroggel

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