* $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
By Elzio Barreto
HONG KONG, Jan 22 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
"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
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
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
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,
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
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.