American International Group Inc. raised a record HK$138.3 billion ($17.8 billion) from the Hong Kong initial public offering of its main Asian unit, 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 an e-mailed 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 U.K. insurer to demand a price cut. AIG Chief Executive Officer Robert Benmosche, 66, has said the divestments will put his company “well within striking distance” of repaying the U.S. 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, who declined to be identified as the information is private. The Kuwait Investment Authority, Guoco Land Ltd. and Wharf Holdings Ltd. are among companies that bought stock in the IPO.
AIA’s IPO surpassed the $16 billion Hong Kong offer by Industrial & Commercial Bank of China Ltd. in 2006, the largest such sale in the city until now, according to data compiled by Bloomberg. 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 interest 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 in a Sept. 24 report by Goldman Sachs Group Inc., one of the banks involved in the IPO.
Ping An Insurance (Group) Co., China’s second-largest insurer, trades at about 2.3 times embedded value and China Life Insurance Co., the nation’s largest, is valued at 2.1 times, according to a Sept. 24 report by Bank of America Corp.’s Merrill Lynch & Co. unit.
Hong Kong Record
AIA’s IPO takes Hong Kong equity fundraising this year to $65 billion, overtaking the record $60 billion garnered in 2007 before the global financial crisis ravaged stock markets, according to data compiled by Bloomberg. The number doesn’t include capital raised through rights offerings.
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 Oct. 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.
Hong Kong’s benchmark Hang Seng Index has risen 8.1 percent this year through yesterday, compared with the 5.8 percent gain of the Standard & Poor’s 500 Index.
AIG’s agreement to sell AIA for $35.5 billion to Prudential Plc collapsed in June when the U.K. 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.
AIG’s bankers estimated that the unit is worth $32 billion to $36 billion, people with knowledge of the figures said in June.
AIA traces its roots to 1919 when Cornelius Vander Starr, an American businessman, set up a fire and marine insurance agency in Shanghai. It 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-U.S. 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.”
Town Hall Meeting
The unit had about $1.78 billion in operating profit in 2009, down from $1.87 billion in 2008, according to its IPO prospectus.
Citigroup Inc., Deutsche Bank AG, Goldman Sachs and Morgan Stanley led banks arranging the IPO, according to the prospectus.
Benmosche hired Tucker in July as chief of AIA. Tucker built the Asia operations of Prudential over 15 years before becoming CEO of the London-based insurer through last year. Benmosche had clashed with AIA’s former head, Mark Wilson, over how to divest the business.
Tucker, 52, told staff at a town-hall style meeting in July that he plans to triple the unit’s value to about $100 billion, according to a person with knowledge of his remarks. The business will be less at risk of a downgrade after the IPO clarifies the unit’s ownership, Moody’s Investors Service said.
“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.”
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