The most-prominent tech investors from Asia and Africa are placing big bets in India. Both Softbank Group (SFTBF) from Japan and the South African conglomerate Naspers (NAPRF) are targeting Indian tech, particularly given the murky investment conditions in China, where both investors made their name.
The Naspers investment arm Prosus (PROSF) is taking money made investing in Tencent Holdings (TCTZF) in China and putting it to work in India. It has just agreed to buy BillDesk for US$4.7 billion, a deal that will see it merge the Indian payment gateway with its own PayU payments business. The result will be one of Indians' largest online-payment providers, with US$147 billion in annual payments volume.
I wrote on Friday how smart private-equity money, in the form of KKR (KKR) and Bain Capital (BCSF) , is putting money to work in transportation stocks in Australia and New Zealand, benefitting from knockdown prices and in apparent preparation for the opening up of both nations. Equally smart tech money is moving into Indian e-commerce and app companies.
As I noted on Monday, Indian equities are leading major Asian markets in gains over the course of the last year. They are at all-time highs this week.
BillDesk is India's oldest payments site, founded in 2000 to enable money transfers and bill payments. The US$4.7 billion price tag will be a big addition to the US$6 billion that Prosus and Naspers have so far invested in India since first entering the market in 2005.
Prosus also holds a stake in Swiggy, India's largest food-delivery company. The company raised US$1.25 billion in funding in July from Prosus and other investors, including the Softbank Vision Fund II. That is the biggest funding round to date for Swiggy, valuing it at US$5.5 billion, according to The Economic Times.
Swiggy rival Zomato (NSE:ZOMATO) went public in July, one of a growing number of Indian "unicorns" to list locally. It has had a bumpy ride since listing, but thanks to a doubling on its first day is still up 74.5% from its list price of 76 rupees.
Swiggy insists it will be remaining private for the foreseeable future. It is rolling out its grocery-delivery service Instamart, which is fully operational in the tech hub of Bengalaru and in soft launch in Mumbai. It also has a morning delivery subscription business for staples like bread and milk called Supr Daily, which competes with rivals such as JioMart, owned by India's largest conglomerate, Reliance Industries (NSE:RELIANCE).
With Zomato already listed, investors will want to watch for a potential initial public offering from Ola, India's largest local ride-hailing service. Softbank has also invested in Ola, injecting US$250 million in 2019 to value the company then at US$1 billion.
It is looking to raise as much as US$1 billion in its stock sale now, valuing the company considerably higher, and is finalizing investment banks to conduct the share sale, according to Reuters on Tuesday. In fact it has already brought in Citibank (C) , Morgan Stanley (MS) and the Indian brokerage Kotak Mahindra (KMBKY), so it likely has already made up its mind.
Naspers, which started life more than a century ago as a publishing company, was an early investor in Tencent Holdings, the videogame maker that also runs China's ubiquitous superapp, WeChat. It held 46.5% of Tencent after its initial 2001 investment, one of the most-lucrative in history.
Naspers listed Prosus as its tech-investment arm in Amsterdam and Johannesburg in 2019, an entity that includes what's now a 28.9% stake in Tencent. Thanks in large part to that initial stake, Naspers has delivered a return to investors of some 12,000% in the last 20 years.
While that's obviously excellent, the outsize nature of the Tencent stake means Prosus dominates the market capitalization of the Johannesburg Stock Exchange, while the movements of Tencent dictate how Naspers and Prosus perform. Naspers owns 56.9% of Prosus, after a stock swap in August, while Prosus owns 49% of Naspers right back. Both trade at a deep discount to the value of their Tencent holding, essentially valuing their stakes in other companies at zero.
Softbank, which runs the world's largest tech-oriented venture-capital fund, has paused new investments in China until there's more clarity on the country's future direction. I understand the reticence of Softbank founder Masayoshi Son.
For investors into Asian emerging markets, China has long been a leading light. That light, though, is suddenly snuffed out. The Chinese Communist Party has put in place a series of regulatory measures targeting individual industries such as videogames and tutoring, Big Tech, and business collectively.
There's a decidedly investor-unfriendly tone to "Xiconomics," the raft of new policies pushed by the Chinese president. Xi Jinping has turned a Mao-era leaf with a pledge to "adjust excessive incomes" and redistribute wealth away from the super-rich in a bid to achieve "common prosperity."
It is not clear how that will happen. New property taxes and inheritance taxes are mooted, but prominent companies are being pestered to do more to support society, an idea far removed from Western ideals that companies should stick to their product and maximize investor profit.
A blog commentary in China widely endorsed by state media called recent "rectification actions" by the party part of a "profound revolution," in which "the capital market will no longer become a paradise for capitalists to get rich overnight."
The column was repeated by multiple Chinese official state news outlets such as the Xinhua wire agency, People's Daily newspaper and CCTV. Such a concerted effort shows it has support from the very top.
India's attraction for investors who are suddenly shy about prospects in China is clear. India offers an equally big market, with the country's population expected to surpass China around 2027. Although infrastructure and policy has been more easily dictated in China's dictatorship, the muddled Indian democracy is under Prime Minister Narendra Modi keen to encourage international investment.
India on Tuesday reported Q2 growth of 20.1% in its economy, year on year. But the record-high comparison is explained largely by its record-low performance in Q2 2020, when the economy shrank a record 24.4%.
The June quarter figures for 2021 were in line with economist expectations. GDP fell quarter-on-quarter, though, and Q2 was 9.2% lower than the same time in 2019, before the pandemic began. For full year 2021, economists expect India's economy to grow 9.5%, offsetting a record 7.3% shrinking last year.