AIA Group IPO covered more than five times: sources

HONG KONG Mon Oct 11, 2010 4:00am EDT

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HONG KONG (Reuters) - American International Group Inc (AIG.N) has received strong demand for the mega IPO of its Asian life insurance business, AIA Group Ltd, with the offer covered more than five times in the first week, sources with direct knowledge of the matter told Reuters.

AIG is aiming to raise up to $20.5 billion, including a rare upsize option, by listing AIA on the Hong Kong stock exchange, according to a term sheet obtained by Reuters earlier this week. The offer was launched on Tuesday and the strong early demand is attributed to attractive pricing, with some fund managers describing the valuation as appealing.

AIG revived the IPO following the collapse of Prudential plc's (PRU.L) takeover of AIA, after the British insurer cut its offer price to $30.4 billion bowing to shareholder's demand,

However, the IPO values the company at little more than Pru's final offer, despite rising stock markets.

AIA, a pan-Asian life insurer, has 23 million in-force policies and an embedded value of $22 billion at the end of May 2010. It operates in 15 Asian markets and is forecast to earn a pre-tax operating profit of not less than $2 billion for fiscal year ending November 2010.

Embedded value is a measure commonly used to gauge the value of insurance companies and includes the present value of future profit from long-term insurance contracts.

Sources also said that AIG is highly likely to exercise the upsize option given the robust demand for the offer. The sources were not authorized to speak to media about the IPO.

An AIA spokeswoman declined to comment.

However, final decision on whether to exercise the upsize option will be based on the final demand and the price. Bankers have previously told Reuters that AIG is keen to sell as big a stake as possible in the IPO.

The bailed out insurer is required to maintain at least a 30 percent stake in AIA for one year of the listing and, if the upsize option was taken in full, AIG would be left with a 32.9 percent stake following the IPO.

The offer is expected to be priced on October 21/22 and the shares would start trading on October 29.

Unlike many other foreign insurers, AIA has 100 percent ownership of its entities in China, Indonesia, Malaysia, Thailand and Vietnam.

AIA is set to the biggest ever life insurance IPO and the second-biggest global IPO in 2010, if it successfully raises the targeted amount.

AIG is raising funds to pay back some of the financial aid it received from the U.S. government during the financial crisis.

AIG is offering 5.9 billion shares in an indicative range of HK$18.38-19.68 each, to raise up to $14.9 billion under the basic offer, the term sheet showed.

Citigroup Inc. (C.N), Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) are joint global coordinators for the IPO. AIG has hired a total of 11 bookrunners to market the offer.

At the offering price range, AIA is valued at 1.2 to 1.3 times 2010 basis embedded value estimated by bookrunners, according to the term sheet.

By comparison, China Life Insurance Co Ltd (2628.HK) (601628.SS) (LFC.N), China's No.1 life insurer, traded at 2.4 times forecast 2010 embedded value, while No.2 life insurer Ping An Insurance (Group) Co of China Ltd (2318.HK) (601318.SS) traded at 2.6 times forecast 2010 embedded value, according to a BofA Merrill Lynch research report.

CLSA Asia Pacific Markets, one of the independent brokers, released a report earlier this week, saying investors can participate in the offer at the low end of the indicative range.

CLSA said that AIA's strong cash generation is a stand out.

"The solvency position as a result is ahead of rivals. The company enjoys solvency margin in excess of 300 percent, allowing it to better plan growth ambitions," CLSA analyst Patricia Cheng said.

(Reporting by Denny Thomas and Kennix Chim; Editing by Toby Chopra)

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