Equity capital markets: Li looks to IPO market as ParknShop sale fails

By:
Anuj Gangahar
Published on:

AS Watson under strategic review; IPO would be Asia’s biggest in three years

At 85, Li Ka-Shing, Asia’s richest man and first among Hong Kong’s biggest entrepreneurs, shows no signs of losing his ability to set the tone for the special administrative region’s deal market. As recently as last month, hopes were high that Li would single-handedly boost the stuttering M&A market in the region following his announcement earlier in the year that ParknShop, his supermarket chain, was up for sale.

But that plan has surprisingly now been scrapped after a host of potential buyers, ranging from Woolworths to Thai billionaire Dhanin Chearavanont’s Charoen Pakphand Group, failed to agree a sale. Other bidders are thought to have included China’s Sun Art Retail Group, Japan’s Aeon Co and China’s state-owned China Resources Enterprise. Bankers close to the deal say the asking price was always too high and the sellers were not prepared to drop it sufficiently.

Hutchinson Whampoa, Li Ka-Shing’s conglomerate, says it is going to carry out what it terms a strategic review of AS Watson
Hutchinson Whampoa, Li Ka-Shing’s conglomerate, says it is going to carry out what it terms a strategic review of AS Watson
Instead, Hutchison Whampoa, Li’s conglomerate, says it is going to carry out what it terms a strategic review of AS Watson, its entire retail and manufacturing arm, in a deal that might raise much more. Alongside ParknShop, AS Watson is made up of several other stores in the personal-care sector including the Watsons, Superdrug and Kruidvat chains. An IPO, one of the possible results of the review, might value AS Watson, which in total has about 11,000 stores across the world, at upwards of $20 billion and an IPO could raise up to $6 billion.

AS Watson traces its roots back to 1828 when a small dispensary was formed to provide free medical services to the people of the province of Guangdong.

The question occupying all concerned Hong Kong watchers now is where Li would put to work the money he might raise from a possible IPO of AS Watson? For some time, Hong Kong loyalists have been worried about a trend of the city’s all powerful big businessmen looking farther afield as they worry about closer regulation in their home market and increasingly spot tempting bargains in Africa, Europe and the Americas.

The prospect of the ParknShop sale, which realistically was expected to fetch $2.5 billion and unrealistically $4 billion, had provided a lift to deal-hungry M&A bankers in the region. That hope has now transferred to ECM bankers, who have not exactly been working flat out themselves in recent months as the IPO market has flattered to deceive. If the AS Watson IPO were to come to fruition it would be the largest equity flotation in Asia in three years. During that time, several potentially market-defining transactions have been cancelled or postponed as geopolitical concerns have made for choppy trading conditions and uncertain investor sentiment surrounding new listings.

AS Watson is part of Hutchison Whampoa, the investment holding company of Li’s Cheung Kong Group. Li’s empire also stretches to ports, property and mobile phones.

News of the possible IPO, which analysts said would almost certainly take place on the Hong Kong Exchange, will come as a relief to those worried after Chinese internet company Alibaba, long seen as the IPO that was going to save the year (or early part of next year) for ECM bankers, now looks unlikely to happen before the start of 2014, if it happens in Hong Kong at all.

Alibaba was founded in 1999 by billionaire Jack Ma and at one point an IPO that might raise up to $15 billion looked certain to happen in Hong Kong. The problem was that in spite of publicly offering shares, the partners of the firm essentially wanted to retain control of the board after the sale. At that point they would own only about 13% of the company. Hong Kong regulators were initially having none of it, saying the partnership structure would disenfranchise holders of common shares. That stance seems to have softened more recently. Some senior Alibaba executives had previously said the model was meant to preserve the culture at the company. The Alibaba partners might like to wait and see how the much-hyped IPO of social network Twitter performs in the US before deciding the timing of its own offering. The NYSE and Nasdaq are both thought to have been in the running to win Alibaba’s debut. Alibaba has been valued by investment bankers at as much as $120 billion, although some see a more conservative valuation of $75 billion. Some estimates have said it might be worth as much a $500 billion as soon as 2015.