American International Group may raise as much as $6.5 billion from the sale of its remaining stake in AIA Group Ltd in Asia’s second-largest block sale ever, exiting a business the U.S. insurer started nearly 100 years ago.
The sale marks the end of an era for AIG in Asia and its Chief Executive Robert Benmosche, who took AIA public in Hong Kong in the world’s third-biggest initial public offering ever two years ago.
AIG was forced to sell parts of its massive business, including AIA, after the U.S. government bailed the company out in 2008 as it teetered on the brink of collapse. The government ultimately spent $182 billion on the rescue.
AIG is offering its 13.69 percent stake in AIA, or 1.65 billion shares, in a range of HK$29.65-HK$30.65 apiece [US$3.83 to US$3.95], sources with direct knowledge of the plan said.
That is a discount of up to 6.3 percent to AIA’s close at HK$31.65 [US$4.08] in Hong Kong on Friday, the sources said, declining to be identified as the terms of the offering weren’t yet public. Trading of AIA was suspended on Monday at the company’s request.
“There are plenty of candidates out there ready to buy into the stock,” said Ping Cheng, an insurance analyst at DBS Vickers in Shanghai.
“AIA offers very solid growth outlook and has a profitable profile. The expectation is that there is plenty of growth out there. They just did an acquisition in Thailand; they’re in the low penetration markets like Vietnam, Cambodia.”
Shares in AIA have soared about 61 percent since the $20.5 billion IPO in 2010, and have become a top choice of fund managers looking to benefit from growing wealth in Asia and booming demand for insurance and other financial products.
The widely expected block offering of Asia’s third-largest insurer will be surpassed only by Vodafone plc’s $6.6 billion stake sale in China Mobile two years ago.
The offering also comes one week after a lockup on the shares expired, adding to two other rounds of AIA share sales in September and March that had raised about $8 billion in total.
The AIA sell down adds to a flurry of block offerings which target a select number of institutional investors and seek to bypass volatile demand from retail investors.
Those deals have surged nearly 90 percent so far in 2012 from 2011 to $49.2 billion, according to Thomson Reuters data, helping investment banks in Asia, ex-Japan, buffer their business from the 60 percent plunge in IPOs.
OPPORTUNITIES IN ASIA
AIG, which expects to use the net proceeds from the AIA sale for general corporate purposes, said earlier on Monday that it had commenced a sale of the shares in Hong Kong by placing them to certain institutional investors. AIG did not identify the potential buyers or disclose the terms of the offering.
Deutsche Bank AG and Goldman Sachs Group Inc were hired as joint global coordinators for the offering, with Citigroup Inc, JPMorgan Chase & Co and Morgan Stanley also acting as bookrunners.
AIG’s exit from AIA comes at a time when Asia’s insurance industry is growing, attracting buyers hoping to tap into the expansion.
A Thai conglomerate bought HSBC’s stake in Ping An Insurance for $9.38 billion, while Hong Kong businessman Richard Li acquired ING’s Hong Kong, Macau and Thailand insurance units for $2.14 billion.
AIG’s exit from AIA has forced the U.S. insurer to strike out on its own in Asia, where it is focusing its attention on China. AIG became the biggest cornerstone investor in the $3.6 billion IPO of People’s Insurance Company (Group) of China (PICC), also inking a joint venture to sell life insurance in the world’s second-largest economy.
“The AIA exit was more about returning cash to repay the government, to strengthen its domestic U.S. business,” said Cheng from DBS Vickers.
“Betting on China, they’re using a small part of their funds, putting on a long-term story. It’s probably easier for you to have a foothold in China going through a strategic holding rather than going directly yourself.”
AIG’s business started in Shanghai in 1919 by U.S. entrepreneur C.V. Starr, with AIA ultimately becoming the name of its regional operation. Twenty years later, Starr temporarily relocated to the United States to avoid political instability in Asia, and following World War II, decided to run his U.S. businesses from New York. They came to be known as AIG, whose shares began trading on the New York Stock Exchange in 1984.
AIA has built a sprawling and successful business across the region, with an army of hundreds of thousands of agents competing head-to-head with Prudential in several countries.
AIA moved to split off from AIG after the U.S. company nearly collapsed in the wake of the 2008 financial crisis, prompting the U.S. government bailout. Its 2010 IPO came after a failed takeover offer of Prudential Plc.
On Friday, the U.S. Treasury Department said it has completed its final sale of common stock in AIG, cutting its shares in the insurer to zero four years after the bailout.
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