AS Watson

Temasek diversifies away from China banks

PUBLISHED : Tuesday, 25 March, 2014, 1:32am
UPDATED : Tuesday, 25 March, 2014, 1:32am

Temasek's plan to buy a stake in the retail arm of Li Ka-shing's Hutchison Whampoa will help Singapore's state-owned investment firm extend its reach in China and ease its reliance on mainland banks.

It agreed on Friday to buy 24.95 per cent of AS Watson for HK$44 billion.

Watson is Hutchison's biggest unit by sales with health and beauty product stores and ParknShop. Its Watsons health and beauty product chain has stores in more than 20 mainland cities.

"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, the 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 the mainland's largest banks, has stakes in Industrial and Commercial Bank of China, China Construction Bank and Bank of China valued at US$16.5 billion. The mainland'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 per cent of Temasek's S$215 billion (HK$1.31 trillion) holdings as of March last year.

The mainland's health and beauty retail market was worth about 915 billion yuan (HK$1.14 trillion) last year, according to data from Euromonitor.

"They are killing two birds with one stone by both investing in China and by investing in a consumer-related company," Behrendt said. "In that respect, the deal definitely fits their strategy."