AIA is back for another attempt at a Hong Kong listing

It’s clearly been a busy summer for AIA Group. In less than four months the company has managed to shake off the bad vibes that lingered after UK’s Prudential withdrew its bid to acquire the entire company from American International Group and has repositioned itself for a listing in Hong Kong instead. And not just any listing – the rumoured size of around $15 billion will make it the second largest IPO in Hong Kong this year and the third largest ever. 

The initial public offering comes sooner than most bankers and market participants thought was realistic when the trade sale collapsed in early June, especially since the company has replaced both its CEO and CFO during this time. However, AIG is clearly keen to divest part of AIA to get additional funds that it can use towards the repayment of a $182.3 billion government bailout in 2008 and it was seemingly not interested in delaying the IPO to next year. The urgency may have increased after AIG’s planned sale of its life insurance business in Taiwan was blocked by Taiwan regulators earlier this month, although in reality the IPO preparations were well under way by then.

The refocus on a listing was facilitated by the fact that much of the documentation was already prepared as AIA was in the process of launching a Hong Kong IPO before Prudential made its bid in early March. And many investors were also already familiar with the company, both from the pre-marketing done ahead of the planned share sale in the first quarter and from Prudential’s keen marketing of the merger idea to institutional investors in the spring.

That said, the rush to get the IPO on the road -- AIG has given itself a firm deadline by choosing to update the listing documentation with audited results up until June only, which means a deal has to be launched by the end of this year at the latest -- means that earlier plans to potentially sell a portion of AIA to a strategic investor before the IPO has had to be scrapped. That suggests that AIG will only be able to offload about half the Asian unit at this time.

According to sources, the exact number of shares to be put up for sale has yet to be determined, and will depend both on the feedback from investors during the one-and-a-half-week pre-marketing period, which kicked off yesterday, and the market conditions. However, the plan is for AIG to sell up to 50% of the company in the form of secondary shares.

“At some level there is a trade-off between the size of the deal and the valuation it can achieve,” said one source, implying that AIG may get more value out of AIA over time if it doesn’t sell too big a chunk now.

According to sources, the IPO is expected to value AIA somewhere between Prudential’s initial bid of $35.5 billion and its revised offering of $30.4 billion shortly before the deal collapsed in early June. At the time, the initial bid translated into a valuation of about 1.7 times embedded value, although one source notes that since then the embedded value has increased, which may somewhat compensate for the fact that IPOs typically come at a valuation discount versus trade sales.

AIA and its bankers are currently in the process of signing up cornerstone investors to help support the deal. Various media have earlier reported that they were in discussion with sovereign wealth funds in Singapore and the Middle East, as well as Chinese parties and that as much as 20% of the deal may be allocated to such players. However, sources note that negotiations with Middle Eastern funds will typically take quite long, and that there may not be enough time to get an agreement in place. Consequently, the cornerstones are likely to come primarily from China and Southeast Asia.

Either way, though, AIA shouldn’t be a difficult sell. The size is large and the stock is likely to become part of several key indexes, including the Hang Seng Index and the MSCI. Being the only life insurance company to offer a pan-Asian exposure, AIA is also a unique and defining deal in the sector. Indeed, even though the bookbuilding won’t start until next week, bankers are saying there are already reverse inquiries from institutional investors who want to get a portion of the deal.

Indeed, the biggest concerns related to AIA is probably that it could end up marginalising other smaller deals that are in the market at the same time – as investors will choose to focus their time on the bigger offerings in the market. That said, valuation will be important, not least for the aftermarket performance and that is something AIG will be keenly watching given that it will be trying to sell the rest of the company at a later stage. Hence, the bookrunners can be expected to pay keen attention to the investor feedback during the pre-marketing.

The formal institutional roadshow is set to kick off on October 6 and the trading debut is scheduled for October 29.

Citi, Deutsche Bank, Goldman Sachs and Morgan Stanley are joint global coordinators, as well as bookrunners together with Bank of America Merrill Lynch, CCB International, Credit Suisse, ICBC International, J.P. Morgan and UBS.