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American International Group is expected to decide by early next week whether to enter formal negotiations with strategic investors for its Asian life insurance business, AIA, sources familiar with the process told Reuters on Wednesday.
That AIG has set a deadline for the strategic bidder process shows that the company may go ahead with plans to list AIA on the Hong Kong stock exchange in the fourth quarter of 2010, a deal that could raise about $15 billion, without an outside investor taking a stake beforehand.
Some Chinese investors have expressed interest in buying stakes in AIA ahead of the IPO. But expectations are running low for the pre-IPO auction to lead to a big deal due to the limited time available.
“The IPO train is moving quite quickly. That means there is limited ability to stop for a strategic investor to come on board and do due diligence and negotiate price,” one source familiar with the process said.
An AIG spokeswoman was not available for immediate comment.
The sources declined to be identified since the discussions were private.
The offering would make it the largest ever Hong Kong IPO and would allow AIG to use the proceeds to pay back the U.S. government for its massive 2008 rescue package.
Strategic buyers offer confidence to prospective IPO investors, as they are long term holders. Strategic investors also help set a valuation benchmark for the IPO.
Most major Western banks that took strategic stakes in Chinese financial groups before their IPO binge five years ago made huge profits on the stakes, although little strategic coordination occurred in return.
CHINESE INTEREST
Three to four separate consortiums, made up of Chinese investors, have approached AIG with proposals to take stakes in AIA ahead of the IPO, one source said. Some consortiums have indicated taking between 10-30 percent stakes in AIA, sources said.
Sources however said that AIG is solely focused on the IPO and the strategic investors are not critical to the listing process.
China Life Insurance Co Ltd, Ping An Cinda Asset Management Fosun Group, Hony Capital (an investment arm of Legend Group, parent of Lenovo Group), and Alibaba.com Ltd, are among the parties that have expressed interest in buying a strategic stake in AIA, media reports have previously said.
AIG is set to name Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley as the joint global coordinators for the IPO, sources have previously told Reuters.
Usually, pre-IPO stakes are sold at a discount to the IPO valuations and that then sets a benchmark for the public offering. A large pre-IPO investment will make it easy for AIG and its advisers to sell the rest of the offer to traditional institutions and mutual funds.
(Reporting by Denny Thomas; Editing by Ken Wills)