AIA IPO Seeks up to $14.9 Bn

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American International Group Inc (AIG) plans to raise up to $14.9 billion through an IPO of its Asian life insurance unit AIA Group Ltd, according to a document obtained by Reuters on Monday.

The Hong Kong-based company plans to raise between $13.9 billion and $14.9 billion by selling 5.86 billion shares at HK$18.38 [US$2.37] to HK$19.68 [US$2.537] each, the document said. Including an overallotment option, the IPO could raise up to $17.1 billion.

The document also revealed a list of cornerstone investors in the offering, including a $1 billion commitment from the Kuwait Investment Authority and firms controlled by Hong Kong tycoon Cheng Yu-tung.

Citigroup Inc, Deutsche Bank AG, Goldman Sachs Group Inc and Morgan Stanley are joint global coordinators for the IPO. Though the total amount has yet to be determined, the standard Hong Kong IPO fee would have the banks involved splitting roughly $500 million in fees.

In addition to a boon to the banks involved, it would also allow AIG to pay back the U.S. government for its rescue in the late 2008.

In total, six cornerstone investors had agreed to commit $1.9 billion to the IPO, said the document which was provided by a person directly involved in the deal, who was not authorized to be identified because the information is not public.

AIG plans to sell 48.6 percent of AIA. Malaysian conglomerate Guoco Group has agreed to invest $370 million, while Lorita Investment and Kumpulan Wang Persaraan signed up to invest $200 million each, the document said. Cheng’s New World and Chow Tai Fook committed $50 million each.

Separately, Bruce Berkowitz’s Fairholme Capital Management, AIG’s largest private shareholder, said it had given a firm indication of interest to invest about $1 billion in the IPO.

AIA’s overall value after listing would be on par with what British insurer Prudential Plc last offered for AIA in its failed takeover bid earlier this year.

EMBEDDED VALUE
AIA’s IPO was set to start on Tuesday, with shares expected to start trading on Oct. 29. The issue was likely to be among the world’s largest ever and follows the record-breaking July deal from the Agricultural Bank of China Ltd. AIA would be the second largest globally this year.

“Considering that some of the Chinese insurers are trading more than two times embedded value, I think AIA can get overall value north of $30 billion,” said Sally Yim, vice president at Moody’s Investors Service in Hong Kong.

Prudential’s initial $35.5 billion bid for AIA was pitched at 1.67 price to embedded value — a measure commonly used to gauge the value of insurance companies that includes the present value of future profits from long-term insurance contracts.

Ultimately, the IPO price and its valuation is determined by the company and its underwriters, who gauge the specific embedded value figure that mutual fund investors are comfortable with, hoping to find a number that encourages the best demand.

“AIA is operating in some of the more mature markets like Singapore and Hong Kong. They have a little bit of a ‘China story,’ but not as much as the Chinese pure plays,” Yim said.

An AIA spokeswoman declined to comment.

Cornerstone investors, including Middle East wealth funds KIA and Qatar Investment Authority, played a key role in the success of AgBank’s IPO, accounting for more than half of the Hong Kong offer.

AIG, nearly 80 percent owned by the U.S. government, is disposing of assets to repay taxpayers who committed $182.3 billion to prop up the insurer during the financial crisis.

Cornerstone investors agree to buy into an IPO before it prices. They are barred from selling their shares for a six-month period.

AIG’s shares were off 0.1 percent at $38.82 during afternoon trading on the New York Stock Exchange.

(Additional reporting by Vikram Subhedar and Paritosh Bansal; Writing by Michael Flaherty; Editing by Chris Lewis, David Holmes and Gerald E. McCormick)