Hong Kong: American International Group is selling part of its stake in AIA Group to raise about $6 billion (Dh22 billion), which will help the US insurer repay part of its government bailout.
Markets reacted favourably, with AIG shares rising to their highest levels in ten months on the news.
AIG is looking to sell about 1.7 billion AIA shares at HK$27.15 to HK$27.50 each (Dh12.85 to Dh13.01), according to a term sheet. That would be a discount of up to 7 per cent to Friday's closing price.
The shares will go to institutional investors. AIG expects to use the net proceeds to reduce the balance of the US Treasury Department's preferred interest in a special-purpose vehicle that holds the AIA shares. As of last month, those preferred interests were worth about $8.4 billion.
77 per cent
The Treasury also owns 77 per cent of AIG's common stock following a massive $182 billion bailout in the wake of the 2008 global financial crisis.
At Friday's close, AIG's one-third stake in AIA was worth $14.9 billion. Following the share sale, the US company will hold about 19 per cent of AIA.
Institutions are expected to buy into the offering because of AIA's strong performance since the company's $20.5 billion Hong Kong IPO in 2010 — Asia's third-largest public listing. But a big run-up in the stock price may have some feeling that the current offer is expensive.
With such a large sale and AIA's free float increasing, though, the company's weighting on benchmark indexes should rise, making the stock a target for fund managers tracking the Hang Seng and the Hang Seng Finance Index.
"The issue of getting the deal through shouldn't be a problem, plus there should be some index buying," said the head of a large US-based asset manager in Hong Kong who was not authorised to speak publicly on the AIA sale.
Kenneth Yue, a Hong Kong-based analyst at CCB International Securities, said the sale looked well timed.
"If you look at AIA's new business growth last year, it went up 40 per cent," he said.
"I believe they've gone to the peak already — it would be very challenging for them to increase their new business value going forward by 40 per cent every year."
Deutsche Bank and Goldman Sachs are the "active" joint global coordinators, according to two sources with direct knowledge of the process. Both requested anonymity because they are not authorised to speak publicly on the matter.
Passive roles
Deutsche and Goldman were among the four banks that led AIA's IPO, along with Citigroup and Morgan Stanley. The sources said Citi and Morgan Stanley were taking "passive" roles in the current AIG sell-down.
The distinction is important, not just for the fees that such a large offering brings, but also in the league table credit that can help a bank's external marketing. For the AIA sell-down, the banks will get equal league table credit, but Deutsche and Goldman will take home the fatter fees, according to one of the sources.
The deal should be "well distributed" among different investors, instead of large chunks going to just a handful, the source noted.
Shares of AIA, headed by former Prudential Plc executive Mark Tucker, have risen 47 per cent since early October and touched a seven-month high last week. The stock closed at HK$29.20 on Friday.
AIG has been on a similar run, gaining 46 per cent over the same period. Its shares rose 1.2 per cent to $30.16 in afternoon trading, their highest level since last May.
