Tencent Holdings is set to invest $7.5 million (R65.9 million) in MIH India Holdings, which is wholly-owned by Naspers, and has suffered a net loss of more than $18.9 million (R166.9 million) since August 2006.
Tencent also signed a licence agreement with MIH India earlier this year, giving it a 50% share in the Indian social media Web site.
While the market value of the 50% is not being revealed, MIH India executives are adamant the $7.5 million investment does not equate to 50% of the company's value.
This is contrary to media reports that stated the $7.5 million investment is for the 50% equity share in MIH India. Indian media reported that, since MIH India's inception in 2006, it has made an average loss of $1.1 million (R9.9 million) per month, which equates to $18.9 million in total.
Antonie Roux, Naspers CEO of Internet operations, explains ibibo, MIH India's subsidiary, is a greenfields start-up operation and as such will continue to make losses for quite some time to come.
Where it went wrong
MIH India made losses while acquiring a 30% stake in ACL Wireless, an Indian mobile service provider, for $12.3 million (R109.7 million) in July 2007. More money was lost acquiring Bixee and Pixrat (four Web sites and a team of developers) also in 2007, developing products, and sponsoring TV shows, like ibibo MTV Superstar and ibibo FTV Fashion Photographer.
Due to the fact Naspers has a stake in both Tencent and MIH India, the joint venture (JV) between the two companies could be seen as an internal transaction.
Roux says Naspers/MIH does not capitalise start-up losses but funds it through internal cash generated from other operations.
He adds that Tencent acquired an option to buy into ibibo and it will supply its technology at no cost to the JV, and no money has exchanged hands because the option has not been exercised.
The JV will give Tencent the option of buying more of MIH India in five years time, says ibibo Web CEO Ashish Kashyap.
Indirectly, this will also give Tencent a stake in mobile value-added services company ACL Wireless, in which MIH India has a 30% stake.
What the deal entails
Kashyap says the deal will result in the creation of a new JV for the Indian market, which will be built-out together between Tencent and ibibo. The JV will have access to Tencent's technology and ibibo's local management team and existing presence in India.
Ibibo is wholly-owned by MIH India and is one of India's largest social media Web sites. It has more than 35 products and applications affiliated with its name.
Tencent Holdings spokesperson Catherine Chan said in media reports that her company has been looking for opportunities to invest in a start-up team in India that is passionate about community and social networking services in a local market.
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