* Hutchison to use proceeds to pay special dividend
* A.S. Watson IPO expected in next two to three years
* Deal values A.S.Watson at $22.8 billion
(Adds context on IPOs, details on previous offerings by Li
By Denny Thomas and Donny Kwok
HONG KONG, March 21 Singapore state investor
Temasek Holdings has agreed to buy just under a quarter
of health and beauty retailer A.S. Watson for about $5.7 billion
in what would be its single biggest investment and one that
would boost its exposure to Asia's fast growing consumer sector.
The purchase of the 24.9 percent in A.S. Watson, owned by
Asia's richest man Li Ka-shing, is part of Temasek's aggressive
reshaping of its $170 billion portfolio to ensure higher returns
by increasing its exposure to unlisted companies. The state
investor's returns have often lagged its own internal metric in
recent years as it focused on blue chip stocks.
Retail sector investments are seen as a way to profit from
rising consumer spending in emerging Asian markets such as China
and Indonesia. 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
"The consumer retail sector is a good proxy to growing
middle income populations and transforming economies," Chia Song
Hwee, head of the Temasek's investment group, said in a
statement. "This is very much part of our investment themes as
we shape Temasek's portfolio for the long term."
Billionaire Li's Hutchison Whampoa, which owns
A.S. Watson, had planned to float part of the retailer in an
initial public offering slated for this year and which would
have been the world's biggest retail sector IPO.
Recent stock offerings, however, have been hit by investor
worries about China's economic slowdown, a factor that has
partly pushed the benchmark Hang Seng index down 9.1
percent so far this year and led to two Hong Kong IPOs being
pulled this month.
Three of Li's businesses have also underperformed the
broader market since their IPOs. Hutchison Port Holdings Trust
has tumbled 37 percent since its Singapore IPO in
March 2011. Hui Xian Real Estate Investment Trust (REIT)
has dropped 34.5 percent since its Hong Kong listing
in April 2011 and HK Electric Investments is down 10.1
percent since its January listing.
"We have a very good relationship with Temasek," Li told
reporters after the A.S. Watson deal was announced. "Sometimes
we are not only looking at the pricing. If the partners like it
very much and consider we are doing the right thing, we are
Hutchison was far advanced with its plans for an A.S. Watson
IPO when Temasek expressed interest in buying a bigger stake in
the company and a deal was struck within two weeks, a person
familiar with the matter said.
EYEING CHINA CONSUMERS
A.S. Watson would join Temasek's portfolio of 24
consumer-related direct investments, according to Standard &
Poor's CapitalIQ database. These include China online education
services company TutorGroup, global sourcing firm Li & Fung Ltd
and Indonesia retail giant PT Matahari Putra Prima TBK
Last week, a Temasek-led shareholder group offered $2.1
billion in cash for the shares in commodities trader Olam
International Ltd they don't already own. Reuters
previously reported the state investor was seeking to sell a
stake in Thai telecoms operator Shin Corp.
Hutchison Whampoa said in a statement on Friday that it
would use part of the proceeds from the stake sale to pay a
special dividend of HK$7.00 per share to its shareholders.
Li said he was still considering an IPO in A.S. Watson in
Hong Kong and Singapore, but that any such offering was likely
to happen in two to three years. The offering was aimed at
raising money to expand the health and beauty business in China.
Temasek's investment in A.S. Watson values the company at
HK$177 billion ($22.8 billion). A.S. Watson's business includes
supermarket chain ParknShop and the Watsons and Superdrug and
Kruidvat personal care stores.
Last year, Hutchison Whampoa scrapped the sale of ParknShop
after bids for the company came in below expectations.
A.S. Watson last year generated $19.2 billion in revenue
from some 11,000 outlets worldwide. Its net profit rose by 13
percent in same year to HK$7.8 billion, Hutchison said in the
Bank of America Corp, DBS Holdings,
Goldman Sachs Group and HSBC acted as advisors
for Hutchison Whampoa, the statement added.
($1 = 7.7645 Hong Kong Dollars)
(Additional reporting by Stephen Aldred, Donny Kwok and Yimou
Lee in HONG KONG and Saeed Azhar in SINGAPORE; Editing by Ryan
Woo and Miral Fahmy)