Not just a pretty face
Li Ka-shing’s dual listing plan may be more than just a vanity project. The tycoon wants to float his A.S. Watson unit in London or Singapore as well as Hong Kong. For most companies the attractions of multiple listings are skin deep. But if the retail group can claw its way into several benchmark indices, it could prove an exception.
According to people familiar with the matter, Li is eyeing a structure whereby shares trade interchangeably between two exchanges. This approach has had limited success when it comes to drumming up new investors. Take Prudential, which added a Hong Kong listing in 2010. The average trading volume of the British insurer’s shares in Hong Kong is just 1 percent of the London average, according to Eikon. Even Standard Chartered’s trading volumes in the former British colony are just 19 percent of London levels.
Investor demand would be more evenly balanced if Watson could qualify for benchmark indices in two locations, forcing institutions which track the index to buy the stock. HSBC, which was allowed to keep its membership of the Hang Seng index even after re-domiciling to the United Kingdom, is the model. Hong Kong still generates about a third of the turnover in the bank’s shares.
With a total market value estimated at $29 billion, according to analysts at CLSA, Watson would easily qualify for the FTSE 100 on size. To gain entry, however, Li would have to incorporate the company in the United Kingdom. To join the Hang Seng index as a foreign company, Watson would need to show that the majority of its revenue or profit comes from China and Hong Kong. That’s not impossible. Watson generated at least 38 percent of its EBITDA in Asia and China in 2013, and its operations on the mainland are growing twice as fast as parts of its European business.
It might be easier for Watson to get into Singapore’s benchmark Straits Times index, which welcomes secondary listings. But London’s more sophisticated investor base would be a much bigger prize. That would ensure that Li’s dual listing is more than just a pretty face.