October 22, 2010 / 12:47 AM / 8 years ago

AIG raises $17.9 billion and prices AIA IPO at top

HONG KONG (Reuters) - AIA, the Asian life insurance arm of AIG (AIG.N), raised $17.9 billion by pricing its Hong Kong IPO at the top of its range as investors piled into the most attractive offering in the world’s hottest financial market.

A logo of AIA is seen during the company's global offering road show in Hong Kong October 6, 2010. REUTERS/Bobby Yip

The pricing of the initial public offering, set to be the world’s third biggest, comes as new listings proliferate in Asia. It puts an end to a long-running saga for American International Group, which tried and failed to sell AIA to Britain’s Prudential (PRU.L) earlier this year.

AIG plans to use some of the proceeds of the AIA sale to pay back part of the $182.3 billion bailout that it received from the U.S. government during the financial crisis.

The successful sale made AIG the top gainer among U.S. insurance shares on Friday, adding more than 2 percent.

AIA said on Friday that the IPO was priced at HK$19.68 each and that it exercised its upsize option. If the underwriters exercise the overallotment option, the IPO size would rise 15 percent to $20.5 billion. AIA’s will start trading on October 29.

“Investors did not dare to miss this jumbo deal as the market has ample liquidity and the sentiment is very strong,” said Antonny Cheng, a fund manager at Gain Asset Management.

AIA has been in Asia for more nearly a century, and has a forecast pre-tax operating profit of $2 billion.

Life insurance premiums in the Asia-Pacific region are forecast to grow at a compound annual rate of 12.3 percent between 2009 and 2014, Sigma Swiss Re estimates, compared with flat to modest growth in other parts of the world.

Still, the company faces a challenge with expanding in China, where the mainland’s top industry players dominate and more foreign competitors are flooding the market.

The IPO will value AIA at $30.5 billion at the top end, with AIG holding a 41.6 percent stake that would drop to 33 percent if it exercises an option to issue more shares.

“It’s more or less fully valued after the shares were sold at the top end,” said Francis Lun, general manager with Fulbright Securities. “Still, one could expect a 5 percent upside on debut.”

AIA sold 5.86 billion secondary shares and exercised the upsize option to sell an additional 1.17 billion secondary.

Unlike many other foreign insurers, AIA has 100 percent ownership of entities in China, Indonesia, Malaysia, Thailand and Vietnam. AIA has more than 300,000 agents in Asia.

“This is a cost-effective way for IPO investors to ride China’s growth,” said Francis Gaskins, president of IPOdesktop.com in Marina del Rey, California.

Asian IPOs raised $90 billion in the first three quarters of 2010, more than double the total from the U.S., Europe, the Middle East and Africa, according to Thomson Reuters.

LONG ROAD TO IPO

AIA IPO and auction efforts started and stopped just after the U.S. bailout. AIA was nearly sold this year to British Prudential, but the talks collapsed in May.

The successful listing of AIA will be welcome news to Robert Benmosche, AIG’s third CEO since the bailout. AIG and the U.S. government last month agreed on a plan that would step up the payback of AIG’s bailout.

AIG shares rose 2.1 percent to $42.14, easily leading all gainers in the S&P insurance index. .GSPINSC An AIG spokesman said the company would not have any comment on the results of the IPO, citing regulatory rules.

The AIA IPO is expected to generate up to $355 million in fees for banks involved in the sale.

That will take year-to-date fees from Asia IPOs to $2.67 billion, according to Thomson Reuters/Freeman Consulting data, making 2010 the best year for IPO commissions since 2000.

A source with direct knowledge of the matter told Reuters that demand from institutions exceeded the offering size by eight times. The retail portion of the AIA offering, which was 10 percent of the deal, generated demand in excess of $14 billion, according to a term sheet obtained by Reuters.

CHALLENGES AHEAD

AIA CEO Mark Tucker, who joined in July, has worked in the region for 17 years. Tucker, 52, is credited with building Prudential’s Asian business, and faces new hurdles at AIA.

The former professional footballer has said he will focus on organic growth. His challenge is to boost growth in China, a quickly growing market dominated by home grown insurers.

AIA will be valued at 1.32 times price to embedded value, far lower than some of the Chinese insurers such as China Life (2628.HK) and Ping An Insurance Co (2318.HK).

By comparison, China Life Insurance (2628.HK) (601628.SS) (LFC.N), China’s No.1 life insurer traded at 2.38 times forecast 2010 embedded value, a Merrill Lynch report says.

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.

Other banks in the offering include Bank of America Merrill Lynch (BAC.N), Barclays, Credit Suisse CSGN.VX, JP Morgan (JPM.N), UBS UBSN.VX, ICBC International and CIMB.

Additional reporting by Phil Wahba, Clare Baldwin and Ben Berkowitz in New York and Donny Kwok in Hong Kong. Editing by Michael Flaherty, Dhara Ranasinghe and Robert MacMillan

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