STOCK TAKE | Prosus gets Indian reprieve - and contender for most-hated firm in SA

OPINION

Prosus gets reprieve in India

Slow processes

Consumer internet behemoth Prosus has just called off, possibly very happily, what would have been its biggest deal to date, the $4.7 billion (R85 billion) acquisition of Indian payment processor BillDesk.

First announced in August 2021, a tie-up between Prosus' PayU and BillDesk would have immediately created a top 10 global payments firm, by value of transactions, as well as marked a significant expansion by the group into credit and banking. However, the timing was off, with Prosus announcing on Monday that not all conditions were fulfilled by the end of September, and that the deal "won’t be implemented".

Bloomberg reports that the condition in question was apparently final approval from competition authorities, also citing unnamed sources in saying that BillDesk will "pursue all options to keep the deal alive".

The difference in opinion from the two sides on the current merits of the deal would be quite understandable. Major central banks are hiking rates and preparing for recession to prevent high inflation becoming entrenched, with the downturn in economic prospects particularly hard for tech shares, generally growth stocks who are expected to justify their current valuations with robust future earnings. The price for BillDesk was negotiated long before this new reality.   

Prosus’s shares have fallen 28% so far in this year, just over twice the fall of the JSE, while in the US, the Dow Jones index has fallen 21%, while the technology-heavy Nasdaq is down about a third.   

Prosus played its cards close to its chest on Monday, but seemed at pains to make clear it was still very much interested in continuing to grow its businesses in India, a market where it has invested $6 billion since 2005, including a stake in India’s largest food-delivery service, Swiggy. 

According to Ernst & Young Global, the technology sector in India is "reigning supreme" in 2022, saying in July that the economic slowdown in China has seemingly brought forward what many have been expecting, that India is the next big market for mergers and acquisitions (M&A). According to EY, global M&A activity was down 27% by value and 18% by volume in the first half of 2022 compared to 2021. In India, however, the combined value of its outbound, inbound and domestic deals jumped to $128 billion in the first half of the year, more than triple the average of the last deal cycle between 2015 and 2019.

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This should be the most hated company in SA

No contest, China

There is no shortage of businesses that did some very bad things in South Africa. But few equal the continuing destruction caused by China Railway Rolling Stock Corporation.

The State Capture Inquiry found that CRRC businesses paid billions in kickbacks to Gupta associates and were unfairly favoured in a R54 billion deal to supply Transnet with locomotives.

State capture indiscretions can happen to the best of businesses, as we have seen. But many of the large auditing and consulting firms have issued apologies and returned all of their earnings from that time. On Monday, Transnet and Alstom announced an agreement about the French giant's part in the dubious locomotive deal from the state capture era.

CRRC – the world’s biggest rail equipment manufacturer - has paid back a pittance of what it received from Transnet, and in a breathtaking move of audacity refused to supply South Africa with spares for its locomotives, in an apparent retaliation for the legal proceedings against it.

As a result, many Transnet locomotives can no longer be used, throttling South African rail, particularly the coal export line. It has cost South Africa billions in lost tax revenue and dumped more trucks on our roads. 

In a deal last month, Transnet agreed to resolve legal disputes with the company, which should release spares. This is no victory. We won’t ever get back what our economy lost. It’s not clear why South Africa’s government would allow a Chinese state-owned group to get away with such behaviour, with such impunity.  Or perhaps it’s perfectly clear.  

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