Posted on 05 Oct 2010
Insurance giant American International Group (AIG) was forced to lower the valuation for the Hong Kong initial public offering of its Asian business, while General Motors (GM) is facing the prospect of raising less money than expected when it hits the stock market later this year, the Financial Times reported on Monday.
AIG had originally planned to sell shares in AIA Group at a level that would value the company at $35 billion to $37 billion and has sought to secure cornerstone investments from Kuwait and others.
But Kuwait’s sovereign wealth fund, Kuwait Investment Authority, agreed to sign on as an investor only after the value of the IPO was set at between $30 billion and $32 billion. Kuwait Investment Authority has reportedly now given a $1 billion commitment for the IPO.
Malaysia’s sovereign wealth fund, Khazanah, and a number of Hong Kong tycoons have also signed up for cornerstone stakes.
These investors will be assured a fixed amount of the offering, but will be subject to a lockup prohibiting them from selling their shares for six months.
AIA, according to a separate Wall Street Journal report, will price its IPO in Hong Kong at HK$18.38 to HK$19.68 a share ($2.37 to $2.54 a share). Hence, the offering could raise as much as $17.1 billion if overallotment options are used.
As for GM, challenging market conditions and a difficult long-term strategy may reduce the company’s post-IPO market value to $60 billion from $70 billion, according to the Financial Times.
The U.S. government, which intends to reduce its stake in GM to less than 50% from 61% with the IPO, would see the total sale price of its common shares fall to a range of $7 billion to $8 billion, from an earlier expectation of $12 billion.
From there, investors will look for subsequent share sales over the next three years to increase the government’s average exit price.
GM is scheduled to go public after the mid-term elections in November.