HONG KONG - AIA, the Asian unit of troubled US insurance giant AIG, is expected
to announce pricing of its shares tomorrow in a sale that may raise US$20.5
billion as institutional demand outweighs subdued interest from retail
investors in Hong Kong, where the shares will be listed next week.
The initial public offering (IPO) is part of AIG's efforts to repay to the US
government the up to US$180 billion it received in a bailout package when
facing collapse during the financial crisis in September 2008. The government
received an 80% stake in the company in return for the rescue.
About 49% of the company is on offer, in a range between HK$18.38 and HK$19.68
a share that would raise about US$15
billion. If demand is sufficient, underwriters could sell more shares to bring
the total raised to about US$20 billion, leaving AIG with a 32.9% stake.
Kuwait Investment Authority, which will buy US$1 billion worth of stock, led
institutional demand for the shares that was strong enough to let AIA complete
its bookbuilding two days ahead of target this week. China Investment Corp, the
country's US$300 billion sovereign wealth fund, leading Chinese insurers Ping
An and China Life, and US fund manager John Paulson were also reported to be
seeking stakes.
AIA, led by chief executive Mark Tucker, has also secured at least US$1.9
billion of commitments from Asian cornerstone investors, led by Wharf
(Holdings) chairman Peter Woo Kwong-ching, who will buy US$200 million of
shares, and Hong Kong billionaire and New World Development chairman Cheng
Yu-tung (US$100 million). Guoco Group, controlled by Malaysian billionaire Quek
Leng Chan, will invest US$420 million, and a Malaysian state-owned retirement
fund US$200 million.
The enthusiasm of institutional buyers is not shared by retail investors, whose
HK$17.7 billion (US$1.46 billion) in margin financing orders received by
Tuesday barely covered the 586 million shares shares provisionally allocated to
them, according to 12 local brokers.
By comparison, the retail tranche of Agricultural Bank of China's H shares was
5.87 times oversubscribed in Hong Kong earlier this year and that of Industrial
and Commercial Bank of China in 2006 was 70 times oversubscribed. Both IPOs
were a similar size to AIA's.
More recently, the public portion of Sihuan Pharmaceutical's recent HK$575
million public offering was 480 times oversubscribed this week, while a HK$1.1
billion IPO by electricity-distribution equipment maker Boer Power Holdings was
340 times oversubscribed. Boer's shares gained as much as 15.7% on their
trading debut on Wednesday. Sihuan starts trading on October 28, one day before
AIA makes its debut.
"If AIA does not set its offer price near the low end of its price range,
investors may hesitate to buying its shares" after listing, said Delta Asia
Financial Group head of equity research Conita Hung Lai-ping. "Besides, the
money that AIA is raising is too much amid recent robust IPOs, and the pool of
capital of the city remains the same, which will make the AIA share sale less
attractive compared with recent successful IPOs."
The fact that the money AIA is raising will repay its parent's debt to the US
government rather than support the company's business development may be
curbing investor interest, some analysts said. The poor recent performance of
other insurance stocks, such as Manulife and China Life, may also be an
inhibiting factor, according to Hung.
Canada-based Manulife, which has a strong presence in Hong Kong, this week was
trading at below HK$100, down from HK$165.1 a year ago, after reporting in
August a second-quarter net loss of C$2.4 billion (US$2.35 billion). Shares in
China Life, the mainland’s largest insurer, trade little changed from a year
ago after downgrades following falls in gains from debt securities and stocks.
JP Morgan last month retained an ''underweight'' call on the stock.
The outlook for AIA's business growth is also limited, according to Andrew
Wong, chief executive of Hong Kong-based brokerage W Bros Group.
"AIA's biggest revenue comes from Hong Kong and Thailand, but Hong Kong is
already a mature market with limited development for the insurance industry,
and growth seems to be difficult in the second half in Thailand," he said.
The insurer's premium income climbed 11.3% to US$9.32 billion in the nine
months through August 31. Thailand’s contribution grew 14.2% to US$1.91 billion
while that from Hong Kong, the biggest contributor, gained marginally to US$2.1
billion from US$2.04 billion a year earlier.
Even so, the value of AIA's new business overall surged 23.5% to US$463 million
in the third quarter from a year earlier, and its new business margin rose to
33% from 27% previously. Parent AIG earlier forecast a US$2 billion pre-tax
operating profit for AIA in the 12 months to November 30, up from US$1.84
billion in 2009.
The new relative independence of AIA will also benefit the company, according
to Dennis Lo, unit manager of AIA and a senior commentator of ETnet, a Hong
Kong-based financial data service provider. He said AIA will work well without
a dominant shareholder after the share sale, citing the example of banking
giant HSBC.
"AIA is an independent company to a large extent, and it will work even better
after the AIG, or the US government I should say, sells the shares, leaving no
dominant shareholders in AIA," Lo said.
He forecast a 10%-20% gain in AIA's share price in the short term.
The independence was underlined by the appointment this month of a board of
directors that includes former Hong Kong chief secretary Rafael Hui Si-yan, MTR
Corp chief executive Chow Chung-kong, and Qin Xiao, a former chairman of China
Merchants Bank.
The board's make-up and independent directors could help improve its brand
image, hurt by AIG's need for the US government's rescue, said Redford
Securities research head Kenny Tang Sing-hing.
AIA is set to rank behind only Agricultural Bank of China, which raised US$22.1
billion in Hong Kong in July, and challenge Industrial and Commercial Bank of
China, which raised US$21.9 billion in 2006, in the size of Hong Kong IPOs.
New York-based AIG was one of the hardest hit financial companies by the credit
crisis triggered by the bankruptcy of Lehman Brothers.
As of June 30, AIG still had US$132.1 billion in outstanding aid from the
government, including US$49.1 billion in loans from the Treasury Department. As
part of its efforts to return money to the government it is to sell two
Japanese life insurance units to Prudential Financial Inc for about US$4.2
billion in cash.
AIG intended to sell 49% of AIA on the Hong Kong market last year before the
plan was aborted following a US$35.5 billion offer from Prudential. The
UK-based insurer later backed out of the deal, leading to this month's IPO.
The sale returns AIA closer to it roots. It was founded in 1931 in Shanghai and
established Hong Kong and Singapore offices.The Shanghai office was closed in
1950 and operations in China were suspended until 1992, when offices were
re-established in China.
AIA serves more than 23 million in-force policies, valued at US$13.9 billion,
served by a network of more than 320,000 agents and about 23,500 employees
across 15 markets in the Asia-Pacific region.
Olivia Chung is a senior Asia Times Online reporter.
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