American International Group, Inc. (NYSE: AIG) earlier this year rejected an offer of $30.5 billion from Britain’s Prudential PLC (NYSE: PUK) for its Asian insurance division American International Assurance Group Ltd., known as AIA. AIG decided instead to pursue an IPO on the Hong Kong exchange, and that offering is now in the books. The IPO valued AIA at about $30.6 billion, but of that AIG gets only about $17.8 billion.
By any measure the IPO was a smashing success. The shares went out at HK$19.68 (about $2.96) and closed the morning session at HK$22.95. The shares are over HK$23 currently. Bloomberg Businessweek has reported that gray market shares of AIA traded at around HK$21.50 before the IPO.
Originally slated for 5.86 billion shares, the offering grew by 1.17 billion shares on strong demand from investors. AIG also retains an option to sell another 1.05 billion shares, which would reduce its remaining stake in AIA from 42% to about 33%. Under the terms of the IPO, AIG cannot exercise its option for six months and must maintain a minimum 30% stake for one year. AIG’s take if it exercises its option could total as much as $20.5 billion.
AIG plans to use its proceeds to pay off part of the $46 billion it still owes to the Federal Reserve Bank of New York.
AIA had commitments from five cornerstone investors totaling $1.9 billion. The largest piece came from the Kuwaiti sovereign wealth fund, which put up $1 billion. Malaysia’s Guoco Group Ltd. and Hong Leong Group committed a total of $420 million and Malaysia’s government retirement fund invested $200 million. Two Hong Kong investment companies and Hong Kong’s Wharf Holdings Ltd. put up the remaining $300 million.
The IPO was the second largest this year, trailing only the massive $22.1 billion IPO of China’s Agricultural Bank of China. The Wall Street Journal noted that the retail tranche of the IPO was oversubscribed by more than nine times, and the institutional tranche was oversubscribed by nearly eight times.
The AIA offering was part of an overall plan agreed to by AIG and the federal government that would repay US taxpayers most, if not all, the $180 billion or so poured into AIG following the financial crisis of 2008.
