* $3.1 bln deal is region's biggest IPO since late 2012
* Sale seen priced at bottom to restore investor confidence
* Watson review could trigger world's biggest retail IPO
HONG KONG, Jan 22 (Reuters) - Tycoon Li Ka-shing made the initial public offering of a Hong Kong utility as cheap as he could, seeking to bolster investor appetite as he considers whether to sell shares in another Li company in what could be the world's biggest-ever retail IPO.
Defying a reputation among Hong Kong investors for selling assets at peak valuation, Asia's richest man on Wednesday priced HK Electric Investments Ltd's sale at $3.1 billion, the bottom of a targeted range. In last year's original plans, the utility investment trust controlled by Li's Power Assets Holdings Ltd was expected to raise up to $5.7 billion.
After two companies in his conglomerate lost about a third of their value since their 2011 IPOs, Li's choice reflects a need to restore the Hong Kong market's confidence. The 85-year-old is reviewing strategy options that include a possible listing that could value retailer A.S. Watson Co Ltd at about $23 billion, raising funds to fuel a major drive in health and beauty products in China.
The sale of HK Electric, which owns the utility that brought electricity to the city in 1890, is still the biggest IPO in Asia excluding Japan since the $3.6 billion listing by People's Insurance Group of China Co Ltd (PICC) in November 2012. Power Assets will use proceeds from the spinoff for expansion overseas.
"Building a relationship with the market is important" for a Watson deal later in the year, said an equity capital markets banker in Hong Kong who is familiar with the deal but not authorized to speak publicly on the matter. "This IPO needs to trade up. People need to feel good about buying Li Ka-shing deals."
The regulated, low-growth environment of the utility sector is far-removed from the kind of interest the man dubbed 'Superman' in Hong Kong will hope to drum up in a potential Watson IPO in what's set to be a marquee year for Hong Kong bankers.
With major economies picking up steam and companies chasing funds to tap into growth opportunities, advisory firm PwC estimates Hong Kong IPOs could raise $32.2 billion in 2014, the highest since 2010 and nearly double the 2013 tally of $17.1 billion.
Among big-ticket deals expected to be launched in Hong Kong this year are a $2 billion offer from Chinese carmaker BAIC Motor, backed by Daimler AG, and a $5 billion listing from Chinese meat processor Shuanghui International Holdings.
Though reflecting reined-in ambition, the Jan. 29 listing means the HK Electric trust, housing a business that supplies power to 568,000 registered customers, carries a projected higher yield than other publicly traded city utilities.
The IPO was priced at HK$5.45 per unit, compared with a marketing range of HK$5.45 to HK$6.30 each, Power Assets said in a regulatory filing on Wednesday. The trust offered 4.43 billion units, putting the deal size at HK$24.1 billion ($3.1 billion).
Bankers said the price should help produce a solid early showing for the trust. "The valuation was just too high. There is a lot of pent-up demand in the market, but investors are very selective," said another Hong Kong-based equity capital markets banker, who was not authorized to speak publicly on the matter.
Li, revered in the city for building a sprawling ports-to-telecoms empire from a plastic flower business in the 1960s, needs the third Hong Kong IPO among his empire of companies within three years to perform better than the others.
Hutchison Port Holdings Trust, spun off from Li's Hutchison Whampoa Ltd conglomerate, has tumbled 33 percent since its $5.5 billion IPO in March 2011. Hui Xian Real Estate Investment Trust (REIT), which was spun off from Li's property company Cheung Kong (Holdings) Ltd. , has dropped 27.5 percent since its $1.6 billion listing in April 2011.
At the IPO price, HK Electric is forecast to pay a 2014 distribution yield of 7.24 percent, according to the deal's prospectus. Hong Kong's listed utilities currently pay dividend yields between 2 percent and 4 percent.
Li's Hutchison Whampoa said last year it's conducting a strategic review of Watson. That review may include an initial public offering of all or parts of the business, it said, without elaborating.
Watson includes a raft of retail operations that could form the vanguard of a drive to expand a health and beauty business in China - a market forecast to grow by around 40 percent to $186 billion by 2015. Housed in the division are supermarket chain ParknShop, the Watsons, Superdrug and Kruidvat personal care stores, Fortress electronic appliance outlets, and chains selling food, wine and luxury and cosmetic products.
A Watson IPO would be one of the most prized among Hong Kong bankers this year for its fee potential.
In the HK Electric sale, Goldman Sachs and HSBC acted as sponsors and joint global coordinators of the IPO, with 10 other banks including Citigroup, Credit Agricole and Morgan Stanley also hired as co-lead managers.
The banks stand to earn as much as $93.3 million in fees for managing the IPO, equivalent to a 2.5 percent underwriting commission and an up to 0.5 percent incentive fee payable to Goldman Sachs and HSBC only, according to the IPO prospectus.