AIA Group Ltd. surged 17 percent in its Hong Kong debut on Friday as investors, chasing exposure to Asia's fast-growing life insurance business, piled into the record offering in the world's hottest IPO market.
The stronger-than-expected listing will be a relief for bailed-out insurer American International Group Inc. after a two-year effort to sell its Asian unit, including a failed takeover attempt from British insurer Prudential PLC.
The strong start boosted AIA's market value above the $35.5 billion Prudential had initially offered for AIA in March, vindicating AIG's decision not to accept $30.4 billion bid that followed.
AIA CEO Mark Tucker will now battle it out with Prudential to grab a greater share of the $358 billion Asia-Pacific life insurance market after spending about 17 years building Prudential's Asian business.
Diversifying quickly into bancassurance — selling insurance products through banks — is one of the battles Tucker has on his hands, as he gets underway to revive growth at AIA after the wounds inflicted by AIG's near-collapse.
"The successful IPO would turn management's full attention back to the core business. The IPO and the separation from AIG took up some of management's time," said Sally Yim, senior analyst of financial institutions group at Moody's Investor Service.
"Whoever is able to diversify into bancassurance and at the same time strengthen their agency productivity will be the winner in Asia," she added.
Tucker, 52, a former professional soccer player known for his long hours and competitive nature, faces off against the likes of Prudential, ING and Manulife Financial Corp.
At the lunch break, AIA closed at HK$22.95, 16.6 percent above the IPO price of HK$19.68, after hitting a high of HK$23.05. A Reuters poll had, on average, forecast the shares to start trading at HK$21.79.
AIA accounted for about 42 percent of Hong Kong's total market turnover with early trade dominated by retail demand, according to Hong Kong exchange data.
Asia has led the world in IPOs this year, raising a record $124.7 billion to account for more than 66 percent of all global volume, according to Thomson Reuters data. One-third of Asia's IPOs have been in Hong Kong, drawing on its access to the booming China market and big investor base.
AIA's IPO was shut two days ahead of schedule after being swamped by orders from Chinese investors and traditional long-only funds. AIG raised $17.8 billion after selling shares at the top end of the marketing range. The offer was subscribed 9.62 times.
The IPO could raise as much as $20.5 billion if AIG exercises the over-allotment option, setting it on course to be the world's third-biggest IPO.
Investors are betting that AIA's market capitalization, which will rank it as the fifth-largest stock on the benchmark Hang Seng index, will generate demand from funds for benchmarking purposes.
CLSA estimates AIA will have a 5 percent weighting in the Hong Kong index.
"It's the prospect of joining major indices that is aiding the upward momentum, otherwise, its earnings growth prospects is not particularly exciting," said Patrick Yiu, a director at CASH Asset Management.
Traders said there was talk of index compilers expediting AIA's move into benchmarks.
While life insurance business is poised for strong growth in Asia, some of AIA's big markets are mature, which is a concern for some investors.
"We still have to see how it performs in emerging markets especially in India and China," Yiu added. AIA has a tiny presence in both those markets.
Life insurance premiums in Asia are projected to grow at compounded annual rate of 12.3 percent between 2009-2014, compared with 2.5 percent in Europe and 4.4 percent in North America, according to Sigma Swiss Re estimates.
Other insurance stocks fell as some investors pulled money out of AIA's bigger rivals. China Life fell 2.9 percent and Ping An Insurance Group Co. of China Ltd lost 3.3 percent.
AIA trades at about 1.4 times price to embedded value, while its larger, China-focused rivals China Life and Ping An trade at P/EV of over 2 times. But relative to its mature market peers such as Prudential PLC, AIA trades at a premium.
AIG plans to use some of the proceeds of the AIA sale to pay back the roughly $100 billion it still owes the U.S. government after its 2008 bailout. It still owns 41.6 percent of AIA, which will drop to about 33 percent if the greenshoe is issued.
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