Report: Process for AIG Asian IPO to Start Soon

By and | May 14, 2009

AIG is expected to soon begin the process of launching the initial public offering of its largest Asian subsidiary, according to sources familiar with the matter, in what could be one of the largest Asian IPOs to hit the market since early last year.

American International Assurance Co Ltd (AIA), the Hong-Kong based unit of American International Group Inc., has more than $60 billion of assets under management and has said it will separate from its embattled parent.

AIG first tried to sell AIA in a private transaction for up to $20 billion last year but failed to find a buyer willing to pay a high enough price.

AIG has suggested it could initially sell up to 20 percent of AIA’s market value in an initial public offering. On that basis, the size of AIA’s public listing could raise up to $4 billion.
The process is expected to begin soon. Requests for proposal will go out in three to four weeks, said an investment banking source close to the AIA process.

The company is eyeing Hong Kong for the public sale of this prized life insurance business, seeing more strength in the Hong Kong market than in New York, where AIG is based.

Chief Executive Ed Liddy told Reuters in a recent interview that to float shares to public investors in Asia also would make sense because AIA is already a household name there.

AIG was founded in 1919 in China, and was the first foreign insurer given the green light to reestablish itself there when the Communist government began to reopen the borders to outside business.

While AIA is considered AIG’s crown jewel, the company is trying to divest it and other properties as quickly as it can to repay part of a U.S. federal bailout that has swelled to around $180 billion.

In March, AIG said it would put the shares of AIA into a specially created and independent legal entity, giving the U.S. government a preferred stake that would help reduce the amount AIG owes to taxpayers and possibly making it easier to launch an initial public offering, said Liddy.

AIG was rescued with taxpayer funds last September after bad mortgage bets left it deeply in the red and on the brink of bankruptcy.

Liddy said in the interview that with an IPO the company would not be dependent on a single buyer, but he added that the business could still be sold outright if a buyer emerged in the coming months.

“My instinct is that we would probably register it (AIA’s IPO) in Hong Kong,” said Liddy. “We have not made any decisions on that but it is a logical place to start.”AIA is an Asian-facing business; it is headquartered in Hong Kong; and all of its businesses are in southeast Asia,” he added.

Liddy said based on current market conditions he would expect to stage an initial public offering in the first half of 2010.

Like any process, the time line could get pushed back, ahead or pulled altogether, if market conditions changed drastically. But sources familiar with the matter say that for now, AIG is pushing ahead quickly with its plans.

During 2008, Hong Kong-based AIA said it recruited more than 52,000 agents, bumping its representation up to about 250,000 agents, and it has about 20,000 employees across 13 Asian markets. It provides coverage to about 20 million customers, or close to a third of AIG’s total customer base.

AIG is also considering public share sales for another international life business, Alico, and its global property-casualty business, AIU Holdings.

“It assumes the financial markets stay where they are or get better. I think that is a good assumption, but you just never know,” said Liddy in the interview.

“These businesses are large, well-established businesses with good management and good track records. So, they are much different than doing an initial public offering in something that has no history,” he added.

Hong Kong’s IPO market has recently shown signs of revival, while the U.S. market for initial public offerings remains cool. Even so, analysts say it could be some time before the Hong Kong market comes near the levels reached at the height of the bull market more than a year ago.

“A really good outcome would be for AIA to be a fully public company,” said Liddy. “That is entirely possible.”

LONG PROCESS
The process for AIA’s IPO kicks off as Hong Kong’s market for public offerings begins to come back to life. In recent weeks, China Zhongwang Holdings Ltd was able to raise $1.3 billion with a public offering in Hong Kong, and several other companies are soon expected to launch billion-dollar share offerings through the city’s exchange.

Liddy said it takes time to pull off a large foreign initial public offering, including meeting international accounting standards and regulatory approvals.

The company also has to choose who will run the IPO. The RFP is typically a multi-page document asking banks to submit their proposals on how they would handle the offering, including what they believe is the best marketing plan and valuation for the company. Banks then put together proposals and subsequently present their ideas to management.

Large IPOs often have a cornerstone investor company or an investment group that purchases a small stake before the offering. AIG, AIA and its advisers will have to decide whether to bring in such an investor.

The list of companies that showed interest in AIA during its auction included Canadian insurer Manulife Financial Corp., Singapore state investment group Temasek Holdings Pte Ltd and UK insurer Prudential Plc.

(Editing by Gerald E. McCormick)

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