AIA, the Asian life insurance arm of AIG, raised $17.9 billion by pricing its Hong Kong IPO at the top of its range, as investors piled into a company with a wide footprint across rapidly growing Asia.
The pricing of the IPO, set to be the world’s third biggest, comes amid a boom of new listings in Asia and puts an end to a long-running saga for American International Group Inc.
Its bid to sell AIA and use some of the proceeds to pay back part of a whopping $182.3 billion U.S. bailout it received during the financial crisis began two years ago and included two failed auction attempts and two floatation efforts.
AIA said on Friday the IPO was priced at HK$19.68 [US$2.534] each and fully exercised the upsize option, confirming an earlier Reuters report. If the underwriters exercise the overallotment option, the IPO size will rise by 15 percent to $20.5 billion. AIA’s trading debut is set for Oct. 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 Ltd.
AIA has been in the Asian region for more than 90 years and operates in 15 markets, with forecast pre-tax operating profit of $2 billion.
Life insurance premiums in Asia-Pacific are forecast to grow at a compound annual clip of 12.3 percent between 2009-2014, sigma Swiss Re estimates, compared with flat to modest growth in other parts of the world.
Still, the company faces a tough 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 will drop to 33 percent if the green-shoe option is exercised in full.
“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 shares due to strong demand from investors.
Unlike many other foreign insurers, AIA has 100 percent ownership of its 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, more than double the combined total from the United States, 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 insurer Prudential, which offered $35.5 billion but then trimmed the amount to $30.4 billion. 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.
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.
AIA CEO Mark Tucker, who was roped into AIA from Prudential in July, is an old Asia hand, having worked in the region for 17 years.
Tucker, 52, is credited with building Prudential’s Asian business, but has new hurdles at AIA.
The former professional footballer has said he will focus on organic growth to expand AIA’s Asian platform. His major challenge is to boost growth in China, a market which is fast growing but dominated by home grown insurers.
AIA relies heavily on an agency network to drive premiums, and only about 8 percent of its business comes from bancassurance. Tucker told a media briefing last week, beefing up bancassurance was a key focus area.
AIA will be valued at 1.32 times price to embedded value, far lower than some of the Chinese insurers such as China Life and Ping An Insurance Co.
By comparison, China Life Insurance, China’s No.1 life insurer traded at 2.38 times forecast 2010 embedded value, a Merrill Lynch report says.
Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc and Morgan Stanley are joint global coordinators for the IPO.
Other banks involved in the offering include Bank of America Merrill Lynch, Barclays, Credit Suisse, JP Morgan, UBS, ICBC International and CIMB.
(Additional reporting by Phil Wahba and Clare Baldwin in NEW YORK and Donny Kwok in Hong Kong; Editing by Michael Flaherty and Dhara Ranasinghe)
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