HONG KONG: American International Group Inc received a $1 billion commitment from Kuwait Investment Authority for the IPO of its Asian life insurance unit, according to a source, the first major investment inked before the roughly $15 billion share sale launches.
AIA Group Ltd is aiming for an overall value of around $30.5 billion after listing, according to another source, on a par with what UK insurer Prudential Plc had last offered for AIA in its failed takeover bid earlier this year.
KIA, the country’s sovereign wealth fund, is among the major global institutions that have signed up as cornerstone investors ahead of AIA’s IPO. The sources had direct knowledge of the matter but were not authorised to speak publicly as the deal has yet to launch.
AIA’s IPO is set to start on Tuesday, with shares expected to start trading on Oct. 29. The issue is likely to be among the world’s largest ever IPOs, and follows the record breaking July deal from the Agricultural Bank of China Ltd, which raised $21.9 billion in Hong Kong and Shanghai.
AIA’s planned listing comes after a takeover attempt by Prudential collapsed in May over price disagreements. Prudential later dropped the offer to $30.4 billion just before the bid failed, a target sources later cited as the likely top end of the IPO valuation range.
"Considering that some of the Chinese insurers are trading more than 2 times embedded value, I think AIA can get overall value north of $30 billion," said Sally Yim, vice president at Moody’s Investors Service in Hong Kong and senior analyst who covers Asia-Pacific’s insurance industry.
Prudential’s initial $35.5 billion bid for AIA was pitched at 1.67 price to embedded value. Embedded value is a measure commonly used to gauge the value of insurance companies that includes the present value of future profits from long-term insurance contracts.
Ultimately, the IPO price and its valuation is determined by the company and its underwriters, who gauge the specific embedded value figure that mutual fund investors are comfortable with, hoping to find a number that encourages the best demand. "AIA is operating in some of the more mature markets like Singapore and Hong Kong. They have a little bit of a ‘China story’, but not as much as the Chinese pure plays," Yim said.
Middle Eat Funds
An AIA spokeswoman declined to comment and KIA could not be reached for comment.
Cornerstone investors, including Middle East wealth funds KIA and Qatar Investment Authority, played a key role in the success of AgBank’s IPO, accounting for more than half of the Hong Kong offer.
But such investors are only likely to buy about 15-20 percent stake in AIA offer, bankers have previously told Reuters.
AIA has yet to decide the exact stake it will sell in AIA, but bankers have said the U.S. insurer is expected to offer around half of the company to the public market.
AIG, nearly 80 percent owned by the U.S. government, is disposing of assets to repay taxpayers who committed $182.3 billion to prop up the insurer during the financial crisis.
Global equity markets rallied in September, historically the weakest month for stocks, driven by a robust Chinese economy and expectations of further monetary easing by developed economies’ central banks to support a shaky recovery.
"The recent upside momentum in the stock market will be favorable for AIA’s IPO," Moody’s Yim added.
Cornerstone investors agree to buy into an IPO before it prices. They are barred from selling their shares for six-month lock-up period, helping build confidence in the offer before it goes to institutional investors.
AIG will hold at least a 30 percent stake in its AIA for a year after AIA listing in October, the IPO term sheet showed earlier.
Additional reporting by Vikram Subhedar and Kennix Chim.
