Temasek Holdings Pte’s plan to buy a stake in the retail arm of billionaire Li Ka-shing’s Hutchison Whampoa will help the investment firm extend its reach in China and ease its reliance on the nation’s banks.
Singapore’s state-owned investment company agreed on March 21 to buy 25% of A.S. Watson & Co. for HK$44 billion ($7.2 billion), marking its biggest acquisition based on data compiled by Bloomberg. The health and beauty chain has stores in more than 20 Chinese cities including Shanghai and Beijing, according to its website.
“Acquisitions like this one were highly overdue to balance out Temasek’s heavy exposure to the financial industry, especially to Chinese banks,” said Sven Behrendt, managing director at Geneva-based GeoEconomica, which researches sovereign wealth funds. “We shouldn’t forget that China’s banks currently have problems. In that respect, the deal really is positive for the portfolio of Temasek.”
Temasek, the biggest foreign investor in China’s largest banks, has stakes in Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China. valued at US$16.5 billion ($21 billion), according to data compiled by Bloomberg. The country’s top four lenders are poised to report the slowest profit growth since the 2008 financial crisis amid surging bad loans and more competition, according to analyst estimates.
Financial services made up 31% of Temasek’s $215 billion holdings as of March 2013, the most among six groups. The category that includes consumer and real estate accounted for 12%, according to its website.
Hutchison shares fell the most in more than two years as the stake sale indicated a valuation that was lower than expected, according to analysts at JPMorgan Chase & Co., Credit Suisse Group AG and Morgan Stanley. Hutchison dropped 5.1% to HK$101.60 at the close in Hong Kong, the biggest decline since October 2011.
The Watson investment comes a week after a Temasek unit offered to buy control of Singapore’s Olam International, one of the world’s top three coffee and rice traders, for $3.2 billion.
China’s four-biggest lenders, which also include Agricultural Bank of China Ltd., are trading at close to the lowest valuations on record in Hong Kong trading. Valuations for the the MSCI China Financials Index dropped to an almost decade low versus the global industry benchmark while the market value of ICBC, the nation’s largest lender, fell below net assets for the first time on March 12.