CORRECTED-UPDATE 1-Hutchison shares in biggest drop in 2-1/2 yrs after Watson stake sale

Mon Mar 24, 2014 12:15am EDT

(Corrects figure in headline to 2-1/2 years, not 2-1/5 years)

By Donny Kwok

HONG KONG, March 24 (Reuters) - Hutchison Whampoa shares fell as much as 6 percent on Monday after a $5.7 billion deal to sell a stake in its health and beauty retailer to Singapore state investor Temasek Holdings disappointed investors hoping for a higher valuation.

The stock saw its steepest drop in 2-1/2 years in the first trading session after Temasek on Friday agreed to buy just under a quarter of retailer A.S. Watson in a deal that valued the company at $22.8 billion.

Traders said shareholders believed A.S. Watson's valuation would have been at higher at around $29 billion if Hutchison owner, Asia's richest man Li Ka-shing, had stuck to his plans to float a stake via an initial public offering this year.

"Investment funds unloaded their holdings as hopes of a spinoff vanished - at least it won't happen in the next two years or so," said Alfred Chan, chief dealer at Cheer Pearl Investment.

Hutchison's shares fell to as low as HK$100.6 ($12.97), their biggest daily decline since October 2011. Billionaire Li said after the Temasek deal was announced that any A.S. Watson IPO would happen in two to three years, and the stock would likely be listed in Hong Kong and Singapore.

Shares of Hutchison, which has a market value of $59 billion, are up 1.5 percent so far this year.

Li's decision to sell a stake to a strategic investor comes after recent stock offerings in Hong Kong were hit by investor worries about China's economic slowdown, a factor that has helped to push the benchmark Hang Seng index down about 7 percent so far this year and led to two Hong Kong IPOs being pulled this month.

A.S. Watson's business includes personal care stores which dominate the beauty and health market in China, a sector forecast to grow by around 40 percent to $186 billion by 2015.

The strategic review for the retail business came about last year after Li scrapped the sale of Hong Kong supermarket chain ParknShop.

The Watson retail arm includes ParknShop, Watsons, Superdrug and Kruidvat personal care stores, Fortress electronic appliance outlets, and chains selling food and wine and luxury and cosmetic products.

($1 = 7.7588 Hong Kong Dollars) (Additional reporting by Anne Marie Roantree and Denny Thomas; Editing by Miral Fahmy)

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