Li Ka-Shing Watson Spinoff May Bring Biggest Asia IPO in 3 Years

Billionaire Li Ka-shing’s Hutchison Whampoa Ltd. (13) is considering selling shares in its A.S. Watson Group retailing unit in what may become Asia’s biggest initial public offering in three years.

Hutchison will review all options for the unit, including a public offering, that will allow it to retain control, it said in an Oct. 18 statement. It could raise as much as HK$98 billion ($13 billion) by spinning off part of A.S. Watson, according to Credit Suisse Group AG, making it the biggest IPO listing in Asia since AIA Group Ltd.’s $20.4 billion offering in 2010.

Hong Kong-listed Hutchison is considering the spinoff after scrapping plans to sell its ParknShop supermarket chain and a review by its financial advisers. A.S. Watson has more than 11,000 stores operating in 33 markets worldwide, according to its website, and its brands include pharmacy Superdrug in the U.K., Rossmann in Germany and namesake stores in Asia.

“Hutchison Whampoa share price will be under pressure in short term to reflect the disappointment the investors have over its failed attempt to sell ParknShop,” Steven Leung, a director at UoB Kay Hian Ltd. said by phone today. “The spinoff of A.S. Watson would be a better option for Hutch in the long run as it could unlock a more attractive valuation given the assets are more appealing.”

Hutchison hasn’t specified the timing, valuation or listing location of any potential offering. Spokesman Jeremy Lau couldn’t immediately be reached for comment.

If the company decides to list a Watson spinoff in Europe, it could become the largest regional IPO since the $17.3 billion sale of Enel SpA, Italy’s largest utility, in 1999, according to data compiled by Bloomberg.

Market Valuation

The A.S. Watson business could have a market value of as much as HK$201 billion if Hutchison spins off 49 percent, according to Credit Suisse. Earnings growth in the retail business has remained strong across different regions, especially Germany and the Netherlands, the Credit Suisse analysts said.

Hutchison shares fell 1.1 percent to HK$95.75 in Hong Kong trading today after announcing plans to scrap the ParknShop sale. The city’s benchmark Hang Seng Index rose 0.4 percent.

Hutchison also operates ports, hotels and provides telecommunication services. Li has stepped up investments in Europe, buying telecom and utilities businesses, betting growth will outpace some of his Hong Kong assets. The billionaire is planning to list his Hong Kong electricity business.

A.S. Watson, which also operates retail stores that sell beverages, wines and electronics, posted sales of HK$148.6 billion last year, with earnings before interest and taxation of HK$10 billion, according to its annual report.

Asia’s Richest

Nicknamed “Superman” by Hong Kong’s media for his investing prowess, the 85-year-old Li is Asia’s richest man with a net worth of $29.4 billion, according to the Bloomberg Billionaire’s index.

Hutchison was seeking $3 billion to $4 billion for ParknShop which controlled 33 percent of the city’s grocery market last year, a person with knowledge of the matter said in August. Charoen Pokphand Group and Australia’s Woolworths Ltd. (WOW) considered dropping their bids for ParknShop, which is a part of the Watson Group., two people with knowledge of the matter told Bloomberg News Oct. 18.

“The asking price was too aggressive,” Ronald Wan, chief China adviser at Asian Capital Holdings Ltd., which has about $100 million of assets under management, said by phone. “Hutchison couldn’t sell with maximum gain and the transaction price of ParknShop would have affected the valuation of Watson, so it chose to drop the plan.”

Surging Rents

ParknShop attracted initial offers in August from suitors including China Resources (291) Enterprise Ltd., Sun Art Retail Group Ltd. (6808), Japan’s Aeon Co., Woolworths and CP Group, according to people with knowledge of the process.

Any investor in ParknShop would face a slowing grocery market and surging rents in Hong Kong, where property agent Savills Plc estimates shop rents have doubled over the past four years. Sales growth in Hong Kong’s supermarket industry slowed to 7.7 percent in June from last year’s annual increase of 11 percent, government statistics show.

ParknShop, which sells everything from eggs to whiskey, has more than 270 outlets in Hong Kong, Hutchison’s 2012 annual report showed.

Market Share

The chain’s market share trailed the 40 percent held by Wellcome, which is controlled by Singapore-listed Dairy Farm International Holdings Ltd. (DFI), according to researcher Euromonitor. CR Vanguard Supermarket, run by state-backed mainland conglomerate China Resources, ranked third with 7.8 percent, according to Euromonitor.

ParknShop, which had revenue of HK$21.7 billion last year, has about 60 outlets in mainland China which have struggled due to competition from rivals such as Sun Art. Its mainland operations reported declines in revenue and operating earnings in 2012, according to the annual report.

Hutchison “will continue to implement an accelerated growth strategy with a particular focus in mainland China,” the company said in the statement.

To contact the reporter on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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Billionaire Li Ka-shing, chairman of Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., correctly forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices.

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Photographer: Jerome Favre/Bloomberg

Billionaire Li Ka-shing, chairman of Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., correctly forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices. Close

Billionaire Li Ka-shing, chairman of Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., correctly forecast in... Read More

Photographer: Lam Yik Fei/Bloomberg

An employee arranges cans of beer on a shelf at a ParknShop Superstore supermarket, operated by Hutchison Whampoa Ltd., in Hong Kong. Close

An employee arranges cans of beer on a shelf at a ParknShop Superstore supermarket, operated by Hutchison Whampoa Ltd., in Hong Kong.

Photographer: Brent Lewin/Bloomberg

Signage for a Watsons store, operated by A.S. Watson Group, is displayed outside a store in the Tin Hau area of Hong Kong, China. Close

Signage for a Watsons store, operated by A.S. Watson Group, is displayed outside a store in the Tin Hau area of Hong Kong, China.

Photographer: Brent Lewin/Bloomberg

Employees work at a check-out counter in a Watsons store, operated by A.S. Watson Group, in the Tin Hau area of Hong Kong, China. Close

Employees work at a check-out counter in a Watsons store, operated by A.S. Watson Group, in the Tin Hau area of Hong Kong, China.

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