Posted on 22 Oct 2010
American International Group (AIG) raised $17.8 billion by selling shares in its Asian life insurance unit, AIA, making another substantial contribution in its efforts to pay down the huge bailout it received from the U.S. government at the height of the global financial crisis.
AIA said Friday that it priced its shares at 19.68 Hong Kong dollars, or $2.53 — at the top of a previously-announced range — making the listing the largest initial public offering ever seen in Hong Kong and in the insurance sector as a whole.
Bankers said the offering had seen buoyant demand from both institutional and retail investors, who are seeking to capitalize on Asia’s rapid economic growth, and AIA’s market position in a sector that is expected to see major growth in coming years.
Rising affluence among Asia’s generally fast-growing populations is expected to lead to escalating demand for insurance and savings products in what is currently still a generally under-penetrated market, analysts say.
This has also helped to make the region a battleground for local and foreign insurance companies and banks seeking to expand their reach.
Headquartered in Hong Kong and with roots dating back to a company founded in Shanghai in 1919, AIA is an established, leading player in the life insurance business, with a well recognized brand, 23,500 employees, 320,000 agents and 23 million policies across 15 countries.
As AIG teetered on the brink of disaster, sending shock waves throughout the financial world, AiA’s focus on Asia provided the insurance giant an island of relative stability.
“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,” Mark Tucker, AIA’s chief executive, said in a statement on Friday.
AIA’s jumbo flotation could grow by another 15 percent if ample demand allows more shares to be issued in a so-called over-allotment option.
This would make the listing the third-largest ever seen, after those of two Chinese banks — testimony also to the fact that Asia has become increasingly important as a location and source of share offerings.
Earlier this year, Agricultural Bank of China, raised $22.1 billion in a listing in Hong Kong and Shanghai, becoming the biggest in history. In 2006, the
I.P.O. of ICBC, another giant Chinese lender, raised $21.9 billion, $16 billion of that in Hong Kong.
AiA will add another financial heavyweight to the Hong Kong exchange, analysts say. The shares start trading on Oct. 29.
“All this enhances the reputation of Hong Kong as a leading fundraising center,” said Francis Lun, general manager of Fulbright Securities in Hong Kong, adding that next year could well see some sizeable listings from Russian and other foreign companies choosing the city as a venue to list their stocks.
For AIG, meanwhile, the spin-off will draw a line under convoluted and protracted efforts to raise cash from AIA which was put on the block — along with a string of other assets — after the U.S. insurance giant was rescued from the brink of collapse two years ago by a series of massive cash injections totaling more than $180 billion.
A first effort to float the Asian business was put on hold after the British insurer Prudential offered $35.5 billion for AIA early this year. That bid subsequently collapsed amid shareholder opposition, prompting AIG to revert to its original plan of a listing in Hong Kong.
AIG will hold 33 percent of AIA if the over-allotment option is exercised, AiA said Friday. Still, the spin-off marks a major step away from Asia for AIG.
The U.S. giant also recently announced it would sell its two Japanese life insurance units — AIG Star Life Insurance and AIG Edison Life Insurance— to Prudential Financial of the United States for $4.8 billion.
It has also tried to sell the Taiwan life insurance business Nan Shan, though those plans have run into opposition from the Taiwanese government.
Mr. Tucker, who was once at the helm of rival Prudential and took over as AIA chief executive in July, has pledged to make the business “the pre-eminent life insurance provider.” The listing, he commented in a statement on Friday, marks “a critical turning point for AIA.”
“I think once they become independent, they will be able to grow the business,” said Mr. Lun of Fulbright Securities. “They have been in a holding pattern since 2008 — this will be a fresh start for them,” he said, referring to the uncertainties surrounding AIA's troubled parent over the past two years.