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AIG Names Five More Banks to Deal with IPO Listing

Source: Wall St. Journal

Posted on 26 Aug 2010

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Sources familiar with the transaction say American International Group, Inc. (AIG) has recruited five additional banks to handle the tasks of the initial public offering (IPO) the insurer is making for AIA Group Ltd, AIG's pan-Asian life insurance company.

Now that AIG has all the banks in place, the insurer will need to determine the size and structure of the IPO in order to make its fall deadline for the Hong Kong listing. AIG will also have to appoint a new CFO for AIA, as the last CFO resigned in the midst of an impotent takeover bid from Prudential PLC this spring.

AIG must sell AIA to help repay taxpayers. Other people familiar with the matter have previously said it hopes to raise as much as $23 billion from the IPO.

The insurer has added Bank of America Corp.'s Bank of America Merrill Lynch unit, Credit Suisse Group and UBS AG as well as Chinese banks CCB International (Holdings) Ltd. and ICBC International Holdings Ltd. as bookrunners on the deal, sources say.

Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and Deutsche Bank AG were appointed as global coordinators in July. All nine banks were previously involved in plans for an AIA IPO, which was abandoned when Prudential made its $35.5 billion move in March.

Prudential's bid ultimately collapsed, prompting AIG to revive its IPO plan for AIA. It has opted to adhere rigidly to its listing timetable, partly to instill a sense of certainty in the minds of AIA staff and stem defections.

As a result, it must quickly make decisions about the offering that could have a significant impact on how much capital it can raise. Other people familiar with the matter said AIG views the Prudential offer as its benchmark for valuing AIA.

For one, AIG has only a few days left before the window essentially closes on the sale of a chunk of AIA to pre-IPO investors. These investors would agree buy shares in AIA at a discount to the IPO price.

People familiar with the matter said AIG has already turned down offers from a consortium of Chinese pre-IPO investors because it couldn't be certain the bidders had secure financing or regulatory approval—and it couldn't wait to find out.

So it is almost certainly going to rely on bankers to drum up what are known as cornerstone investors. These investors would buy a large slice of AIA at the IPO price. About a quarter of the institutional tranche of the IPO will be earmarked for cornerstone investors, the people said. The institutional tranche is expected to account for the bulk of the IPO, with the rest going to Hong Kong retail investors.

AIG's advisers have already talked to sovereign-wealth funds—including China Investment Corp., Singapore's Temasek Holdings Pte. Ltd., the Government of Singapore Investment Corp., the Kuwait Investment Authority and the Abu Dhabi Investment Authority—about investing in AIA. They also have spoken with several Hong Kong-based tycoons about acquiring a piece of AIA, the people said.

Given these are some of the largest investors globally, this is considered standard practice for IPOs of this size. It is unclear whether they will invest.

The schedule of the IPO is tight. AIA, which was founded in Shanghai in 1919 and incorporated in Hong Kong in 1931, must submit a formal filing to the Hong Kong Stock Exchange in September if it wants to meet its October listing target. The exchange's hearing committee will wait at least 25 business days from the filing date to discuss the proposal. Once approved, the IPO wouldn't be far off.

AIA wants to list in October so that AIG can repay money around December to the Federal Reserve Bank of New York, which holds $15 billion preferred equity in AIA and is owed another $21 billion under a credit facility it provided to AIG. The New York Fed is positioned to receive all the proceeds from the AIA IPO.

Only after the New York Fed is repaid can AIG start to plan for the government's exit.

This demanding schedule is set against souring sentiment for global stock markets as worries return about the economic recovery. The Hang Seng Index has fallen in five of the last six sessions and is down 5.7% this year.

People involved in the deal said they are confident the process will run smoothly because many investors have already analyzed AIA when Prudential was defending its bid for the pan-Asian insurer earlier this year.