AIG Asia unit float in Hong Kong aims to raise $15 billion

By Cathy Chan (China Daily)
Updated: 2010-10-06 08:24
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AIG Asia unit float in Hong Kong aims to raise $15 billion

HONG KONG - American International Group Inc, the bailed-out insurer, is seeking as much as HK$115.3 billion ($14.9 billion) in an initial public offering (IPO) of its Asia unit in Hong Kong, two people with knowledge of the matter said.

The company plans to sell as many as 5.9 billion shares of AIA Group Ltd at HK$18.38 to HK$19.68 each, said the people, who declined to be identified because the discussions are private. The offering represents a stake of about 49 percent of the company, the people said, which would value Hong Kong-based AIA at as much as $30.6 billion.

AIG is taking advantage of a gain in Hong Kong stocks to attempt what may become the city's biggest-ever IPO, moving the insurer closer to repaying its $182.3 billion government bailout. The offering values AIA at a premium to European rivals, based on forecasts by the IPO arrangers.

"Many investors will have an interest in it because it's a sizable issue," said Michiya Tomita, a Hong Kong-based fund manager at Mitsubishi UFJ Asset Management Co, which oversees $65 billion globally. "In terms of growth prospects, the valuation is a little expensive because the company isn't focusing on China."

AIG has an option to sell more shares in AIA, taking the potential size of the IPO to $20.5 billion, a term sheet for the transaction sent to fund managers showed. That would make it the largest ever in Hong Kong, overtaking the $16 billion raised by Beijing-based Industrial & Commercial Bank of China Ltd in 2006, data compiled by Bloomberg show. At the bottom end of the range, the company will be valued at $28.5 billion.

Embedded value

AIA had an embedded value of $22 billion at the end of May, according to an AIG filing with the US Securities & Exchange Commission. Embedded value estimates a life insurer's net worth excluding new business, using actuarial and investment return assumptions.

Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley of New York and Frankfurt-based Deutsche Bank AG are among the banks arranging the sale. The stock is scheduled to start trading on Oct 29.

AIA's embedded value may grow to $25.8 billion next year, according to Sept 24 reports by Goldman Sachs and Merrill Lynch & Co. The high end of the IPO price range values the company at1.18 times its estimated 2011 embedded value.

China Life Insurance Co, the nation's largest insurer, is valued at 2.1 times next year's embedded value and European insurers trade at an average of 0.8 times, according to Merrill, which is also helping arrange the sale.

Investors "are probably more tempted by a valuation closer to $30 billion," said Christopher Wong, Singapore senior investment manager at Aberdeen Asset Management Plc, which oversees $267 billion.

"The offering is already factoring in pretty aggressive growth rates in an uncertain global operating environment."

New York-based AIG is taking the division public after Prudential Plc backed out of a deal in June to pay $35.5 billion for AIA. The company's holding in AIA would fall to 33 percent should the options to expand the IPO be used in full, terms show.

AIG, led by Chief Executive Officer Robert Benmosche, may use remaining shares in the company to help pay down obligations to the US Treasury Department. Mark Herr, a spokesman for AIG, declined to comment.

Fairholme Capital Management, the biggest private investor in AIG, said it has provided a "firm indication of interest" in investing about $1 billion in AIA's IPO.

Bloomberg News