Posted on 23 Jul 2010
American International Group Inc. (AIG) has chosen Goldman Sachs Group Inc. and Morgan Stanley as global coordinators in listing its Asian life-insurance unit this autumn, people familiar with the matter said Wednesday, kick-starting a share sale that could raise as much as US$23 billion for U.S. taxpayers.
The insurer, which is majority-owned by the U.S. government after being rescued in 2008, has also enlisted Deutsche Bank AG as a global coordinator for the initial public offering of AIA Group Ltd., one of the people said.
A key consideration for the banks will be how to minimize the risk of tapping investors for capital when the outlook for equity markets is so uncertain. AIG's management is especially keen to avoid hiccups after Prudential PLC's $35.5 billion bid for AIA collapsed last month, people familiar with the situation said.
One way is to sell as much as possible in large chunks to so-called cornerstone investors ahead of the IPO, which creates a sense of scarcity value when the public offer opens. One banker involved in the deal said "no stone will be left unturned" in the search for prospective pre-IPO buyers.
The successful $19.21 billion dual listing earlier this month by Agricultural Bank of China Ltd. in Hong Kong and Shanghai has encouraged bankers to adopt a similar strategy, the people said. AgBank locked in $5.45 billion of investment from three sovereign-wealth funds as well as several financial firms and corporations that helped it build confidence among institutional investors even before the public offering was launched.
"The universe of cornerstone investors will be similar to the ones in Agricultural Bank," said another banker involved in the deal.
In Hong Kong, cornerstone investors can often take large portions of an offering in return for agreeing to hold the shares for up to a year. The local stock exchange is also relatively flexible about the size of free floats. It stipulates at least a quarter of the company should be floated, unless the expected market capitalization at the time of listing is more than 10 billion Hong Kong dollars (US$1.29 billion).
Bankers expect institutional investors to use Prudential's $35.5 billion bid as a yardstick for valuing the company. Advisers to the company have told AIG that it should be able to raise $12 billion to $15 billion from the AIA IPO and another $5 billion to $8 billion from stake sales to strategic investors, the people said.
Bankers say it is difficult to find a direct comparison in Asia for AIA to use as a guide for potential investors as it is present in 15 countries there with roots in the region dating back 90 years. One banker suggested that Australia-based financial-services firm AXA Asia Pacific would be used as a benchmark for the lower end of valuation, while Chinese insurers such as Ping An Insurance Co. would be used to mark the upper end of expectations.
However, one banker said Prudential had made such a huge effort to familiarize investors with AIA that they already had a grip on the company's financials and a speedy process would be possible.
Before the Prudential bid announced in March, AIG asked nine banks to plan an IPO. The biggest roles, commanding the most fees, went to Morgan Stanley and Deutsche Bank, as global coordinators and book runners.
This time around, Goldman has been added. One person suggested that its performance on the sale of American Life Insurance Co, also known as Alico, was a factor in the decision. The deal raised $15.5 billion for AIG.
AIG now has to choose the other book runners on the IPO. Last time around they were Goldman, Citigroup Inc., Bank of America Merrill Lynch, Credit Suisse Group AG, UBS AG and Chinese banks CCB International (Holdings) Ltd. and ICBC International Holdings Ltd., according to data provider Dealogic.
Morgan Stanley is an adviser to the U.S. Federal Reserve, while Goldman, Citigroup and Deutsche Bank are advisers to AIG.
A decision on book runners is expected soon, given AIG wants to list AIA before by the end of October or early November. Meetings have been set between bankers and the company for later this week, the people said.