Deutsche and Morgan Stanley mandated for AIA IPO

Sources say Deutsche Bank and Morgan Stanley have been appointed global coordinators for the listing. Other banks are expected to join them as bookrunners later.

US-based insurance company American International Group Inc (AIG) has appointed Deutsche Bank and Morgan Stanley as global coordinators for the forthcoming initial public offering of its Asian life insurance unit, American International Assurance Company (AIA), according to sources familiar with the selection process. The pair is expected to be joined by one or two more international banks and perhaps one China-based investment bank as bookrunners, but these will be announced later, the sources said.

The job of bringing AIA to market has been hotly contested in recent weeks as the deal could be the largest IPO in Asia since April 2007 when China Citic Bank raised $5.9 billion from a dual listing in Hong Kong and Shanghai. As such, it will bring in hefty fees for the banks involved.

According to various media reports more than 30 investment banks handed in their applications to participate in the deal when AIG kicked off the selection process in mid-May and sources say 10 banks were invited to formally pitch last week, including three Chinese banks.

Morgan Stanley was widely expected to clinch one of the key roles since it is advising the US Federal Reserve on its bailout of AIG. Deutsche Bank is a bigger surprise for the top AIA mandate, although the German bank has recently been helping AIG to sell assets in the Philippines and Malaysia and may have formed a good relationship with the group during that process. Earlier this year, the bank also beefed up its global financial institutions group with 12 new hires who all came from Bank of America-Merrill Lynch. Among them was Richard Gibb, who took up a position as co-head of FIG for Asia-Pacific alongside Bill Nicholl.

Deutsche was selected ahead of Citi and Goldman Sachs, which had been viewed as front-runners after they led the search earlier this year for investors who would be willing to take over AIA through an M&A deal. According to sources, AIG wasn't happy with the prices the potential buyers were willing to pay and that process was eventually called off by the US insurer. It is possible that AIG felt it wanted some fresh blood to deal with the IPO.

However, Citi and Goldman are still in the running for a bookrunner role, which pays slightly lower fees, but is nevertheless key for a successful listing. Other banks that pitched last week include Credit Suisse, HSBC, J.P. Morgan and Macquarie, and China's BOC International, CICC and Citic Securities.

The selection process is led by The Blackstone Group, which is acting as global financial adviser for AIG's restructuring programme and IPO adviser for the AIA listing.

While there was initially talk that this deal could come to market as early as the fourth quarter, bankers now say it is unlikely to happen before the first quarter next year. With businesses spread across Asia, the group ownership structure is fairly complicated and may need to be streamlined before a listing can take place. One banker also noted that insurance is a regulated industry and the spin-off is bound to need "lots of approvals" to proceed.

The size of the offering is still uncertain as there are several moving parts in the equation. For one, it isn't known what proportion of AIA that AIG intends to sell and it is also difficult to value the Asian business since AIG doesn't provide a breakdown of numbers in its accounts. However, most estimates suggest that the unit, which is being described as the "cash cow" of the group, will fetch at least $5 billion and if the stockmarkets remain cooperative, perhaps as much as $10 billion.  

AIG hasn't specified where it wants to list AIA, saying only that the aim is to float the company on an Asian stock exchange, but analysts say Hong Kong would make the most sense since AIA's headquarter is there. Hong Kong is also home to the large Chinese life insurers which are all actively traded and closely followed by the analyst community.

AIG needs money to pay back the $182.5 billion of bailout funds extended to the firm by the US government since last year. In March, the company's chairman and CEO Edward Liddy told a congressional panel that the company plans to repay the government in three to five years.

Contrary to AIG though, AIA has weathered the financial crisis relatively well, and given the problems at the top of the group, it should benefit from becoming an independent entity.

AIA has a long history in Asia where it has operated for 90 years. It currently has more than 20 million customers and 250,000 agents in the region. According to an earlier statement, it has more than $60 billion worth of assets, which makes it one of the largest life insurers in the region. Its operations are well-diversified geographically and include the region's developed markets in Australia, Hong Kong and Singapore; the strong growth markets in Taiwan and South Korea; and in the emerging markets in China, India and Southeast Asia. No other single life insurer gives access to all of that, according to a banker focusing on the sector.

AIG has said that it intends to incorporate the two AIA units in the Philippines and Taiwan, which currently operate as separate entities, into AIA before the spin-off.

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