As of mid-January 2026, the Hang Seng Index is hovering around 27,000 points, and after a prolonged lull, the market for major IPOs is showing signs of recovery. Reports suggest that CK Hutchison’s long-anticipated plan to spin off Watsons has officially begun. The company has appointed Goldman Sachs and UBS as lead underwriters, with the goal of completing a dual listing in Hong Kong and London in the first half of this year. The IPO is expected to raise approximately US$2 billion, equivalent to HK$15.6 billion.
This marks the largest capital operation by the Li Ka-shing family in recent years, signalling the group’s intent to capitalise on the global interest rate cuts and market recovery. The spin-off not only aims to unlock the hidden value of Watsons but also to generate substantial cash flow that could support future business expansion or M&A opportunities. Moreover, the dual listing in Hong Kong and London serves as a hedge against geopolitical risks, laying a more secure foundation for CK Hutchison’s long-term development.
A Tale of Two Cities: The Strategy Behind Listing in Hong Kong and London
The choice of listing venues is a key focus of this spin-off. CK Hutchison has not relied solely on Hong Kong, nor has it turned to New York. Instead, it has strategically opted for a dual listing in Hong Kong and London, reflecting the management’s deep understanding of Watsons’ business positioning and the preferences of different capital markets.
Hong Kong is a natural choice for CK Hutchison, given its deep roots in the city. Watsons enjoys significant brand influence across Greater China, and listing in Hong Kong not only maintains long-term investor interest in the brand but also reinforces its home-field advantage.
Meanwhile, London provides an opportunity to achieve a better valuation. In recent years, Hong Kong’s stock market has been dominated by technology and high-dividend state-owned enterprises, leaving traditional retail stocks struggling to achieve ideal price-to-earnings ratios. In contrast, UK and European investors are more familiar with the retail business model, with established examples such as Tesco and Sainsbury’s. These investors tend to assign higher premiums to companies with stable cash flow and mature operations.
Additionally, Europe has become a core revenue driver for Watsons. Its subsidiaries, Superdrug and Savers, have built a vast retail network in the UK. Listing Watsons in London effectively places the asset in its primary revenue market, allowing local institutional investors to participate directly. This not only reduces the information gap but also supports a more solid valuation.
The dual listing also reflects a risk diversification strategy. Watsons’ personal care and pharmacy businesses fall under essential consumer goods, which are far less susceptible to geopolitical tensions compared to industries like technology or infrastructure. Amid the current volatile international landscape—such as CK Hutchison’s stalled sale of the Panama Canal port—listing a stable, cash-generating asset like Watsons in London helps mitigate risks in its global portfolio. This move aligns with the Li family’s recent approach of flexible asset reallocation.
A Shareholder-Friendly Move: Temasek’s Exit Strategy
Beyond the strategic choice of listing locations, another critical factor behind the spin-off is facilitating a shareholder exit.
In 2014, Singapore’s sovereign wealth fund Temasek invested HK$44 billion to acquire a 25% stake in Watsons, valuing the company at approximately HK$177 billion at the time.
Typically, private equity investments follow a 3- to 5-year cycle. However, the retail landscape has undergone dramatic changes over the past decade. The rise of e-commerce and the prolonged impact of the pandemic repeatedly delayed Watsons’ IPO plans. Temasek, now holding its stake for 12 years, has far exceeded the usual investment cycle.
As the majority shareholder, CK Hutchison has a responsibility to provide an exit or partial exit mechanism for its investors. The spin-off and dual listing allow Temasek to liquidate or reduce its stake based on its needs, demonstrating CK Hutchison’s commitment to honoring agreements and maintaining its reputation in international markets.
The choice of Goldman Sachs and UBS as lead underwriters underscores this intent. Goldman Sachs excels at placements and pricing for US-based institutional investors, while UBS has a strong network in Europe. This combination ensures that the IPO will attract major global long-term funds, paving the way for Temasek and other shareholders to reduce their holdings smoothly.
Returning to Business Fundamentals: Balancing the European and Asian Markets
Watsons Group’s operations exhibit clear regional contrasts, a key point of consideration for investors assessing its IPO potential. Europe, particularly the UK, has emerged as a bright spot. In 2024, Superdrug achieved strong results with notable profit growth. This success was driven by effective strategies tailored to market conditions. In a high-inflation environment, consumers emphasised affordability, and Superdrug capitalised on this trend by aggressively promoting its private-label products, offering quality at lower prices. At the same time, the company introduced popular Japanese and Korean beauty brands, successfully drawing in younger, trend-conscious Gen Z consumers. These efforts have led to solid operational performance, enabling the business to generate stable cash flow, as evidenced by its recent significant dividend payouts to the parent company.
In contrast, the Chinese market presents a more complex picture. Despite Watsons’ extensive store network, the rise of e-commerce livestreaming and fierce competition from domestic beauty brands have put pressure on traditional retail sales. To address these challenges, the group is focusing on integrating online and offline channels. By leveraging its global database of over 100 million members, Watsons is employing precise marketing strategies aimed at improving customer conversion rates and driving growth in the increasingly digitalised retail landscape.
The upcoming IPO prospectus will need to demonstrate how Watsons is balancing these two regions. On one hand, it must highlight the stable growth and reliable cash flow of its European operations, which will serve as a key foundation for valuation. On the other hand, it must present the Chinese market as a source of untapped potential, poised for recovery through digital transformation and innovative strategies. The decision to list in London underscores the group’s intention to emphasise Europe’s strong performance while mitigating investor concerns about the challenges faced in the Chinese market.
Financial Impact: Unlocking Value and Strengthening the Balance Sheet
From a financial perspective, the spin-off of Watsons holds significant meaning for CK Hutchison, particularly in two areas: addressing the conglomerate discount and improving its capital structure. CK Hutchison’s operations span diverse industries, including ports, infrastructure, telecommunications, and retail. However, such conglomerates often face valuation challenges, as the market typically values the parent company at less than the combined worth of its individual business segments. By spinning off Watsons, CK Hutchison allows its retail arm to receive an independent and transparent market valuation, enabling investors to reassess its net asset value. Investment banks like Morgan Stanley have noted that the spin-off could act as a catalyst for CK Hutchison’s stock price, helping to close the gap between its market price and its intrinsic value.
In addition to unlocking value, the spin-off is an opportunity to enhance CK Hutchison’s capital structure. With global interest rates entering a downward cycle, financial flexibility has become increasingly important. While the US$2 billion IPO proceeds may not represent a massive sum for CK Hutchison, the funds can still be used to repay some floating-rate debt, reducing interest expenses and improving financial stability. Furthermore, the additional cash reserves will provide resources for potential acquisitions or defensive measures in the future, reflecting a cautious and prudent approach to financial management.
A Continuation of the Li Family’s Investment Philosophy
The Watsons spin-off aligns with the Li family’s long-standing investment philosophy, which prioritises maximizing asset efficiency over holding onto assets indefinitely. This principle has been evident in past decisions, such as the sale of Orange in the early 2000s and the more recent monetisation of European telecom towers. Both moves were aimed at unlocking hidden value within the business and reallocating capital to more stable or defensive areas.
One of the key questions surrounding the spin-off is how CK Hutchison will use the funds raised. Drawing on the precedent of the Hongkong Electric spin-off, investors are speculating whether the company will issue a special dividend to reward shareholders. While it is too early to make definitive conclusions, such a move would undoubtedly bolster market confidence and reaffirm CK Hutchison’s commitment to delivering shareholder returns.
Overall, the dual listing of Watsons in Hong Kong and London represents a critical strategic move for CK Hutchison in 2026. This decision not only marks the culmination of years of investment but also demonstrates a cautious and forward-thinking approach to navigating the current global environment. By unlocking value, addressing shareholder needs, and enhancing financial flexibility, CK Hutchison is positioning itself and Watsons for sustained growth and resilience. The spin-off not only establishes Watsons as an independent retail powerhouse but also strengthens CK Hutchison’s overall market position, ensuring that the group remains adaptable and well-prepared for future challenges.
