US insurer sells 58% of Asian unit to repay 2008 bailout

American International Group Inc (AIG) raised a record HK$138.3 billion ($17.8 billion) from the Hong Kong initial public offering of its main Asian unit Friday, putting the world's largest insurer on course to repay its 2008 bailout.

AIG sold 7.03 billion shares, or a 58 percent stake, at HK$19.68 each, the top end of a marketing range, Hong Kong-based AIA said in an emailed statement. It used an option to expand the sale offered from 5.86 billion, or a 49 percent stake.

The largest IPO in Hong Kong's history followed the failed sale of AIA to Prudential Plc for $35.5 billion in June, as shareholders forced the UK insurer to demand a price cut. AIG Chief Executive Officer Robert Benmosche has said the divestments will put his company "well within striking distance" of repaying the US government for aid received during the global credit crisis.

"AIA attracted a diversified group of investors including Asia-focused funds and local investors," said Derek Mok, a Hong Kong-based fund manager at Guotai Junan Asset Asia. "The oversubscription is not a big surprise as AIA is a regional insurance player, a rarity in Hong Kong's IPO market."

Investors, including institutions and Hong Kong individuals, ordered more than HK$1 trillion worth of AIA stock, according to two people with knowledge of the matter. The Kuwait Investment Authority, Guoco Land Ltd and Wharf Holdings Ltd are among companies that bought stock in the IPO.

The company forecasts operating profit of at least $2 billion for the year ending November, and operates in 15 Asian markets with 309,000 agents, 24,500 employees and more than 23 million in-force policies.

"AIA's anticipated market capitalization may earn it a spot within regional and global indexes. Speculation about this is said to be driving interest in the AIA IPO," said Charles Stucke, a senior managing director of Guggenheim Partners LLC. "Most investors we cover who claim interested articulate strong demographics-based growth arguments and a belief in a potentially attractive valuation."

The insurer is valued at $30.6 billion at the final price, or about 1.18 times its embedded value of $25.8 billion next year as estimated by Goldman Sachs, one of the banks involved in the IPO.

AIG has the option to sell 1.05 billion more shares during AIA's first month as a listed company, potentially taking the total amount raised to $20.5 billion and cutting its stake to 33 percent, according to a prospectus. The stock is scheduled to start trading October 29.

"We are very pleased that the offer price has been set at the top end of the range, reflecting a very strong vote of confidence in AIA's future and our ability to capture and realize the exceptional growth potential of the Asia Pacific region," AIA Chief Executive Officer Mark Tucker said in the statement.

AIG's agreement to sell AIA for $35.5 billion to Prudential Plc collapsed in June when the UK insurer tried to cut the price to $30.4 billion. Based on the IPO price, AIA is valued at more than Prudential's revised bid, though less than its initial offer.

AIA was the first foreign-owned insurer to get a license in China, according to the company's website. Former AIG CEO Maurice "Hank" Greenberg has called the company's non-US life insurance divisions "crown jewels" that couldn't be replicated by rivals.

"The IPO is a critical turning point for AIA and we are delighted that it has been so positively received by investors around the world," Tucker said. "This reception underscores the attractiveness and uniqueness of the AIA franchise and its competitive advantages."

The unit had about $1.78 billion in operating profit in 2009, down from $1.87 billion in 2008, according to its IPO prospectus.

"There are certainly concerns because outside China, its core business is experiencing a slowdown everywhere else in the region as the insurance market is already pretty mature," said Danny Yan, Hong Kong-based portfolio manager at Taifook Asset Management, which oversees about $400 million. "If the only bright spot, China, fails, that could be a problem."

Bloomberg

(HK Edition 10/23/2010 page3)