American International Group (AIG) is selling part of its stake in AIA Group to raise about US$6 billion to help the US insurer repay a huge federal government bail-out.
AIG is looking to place some 1.7 billion AIA shares in a range of HK$27.15-27.50 per share – a discount of up to 7 per cent to Friday’s AIA closing price, according to a term sheet seen by Reuters on Monday.
The shares will go to institutional investors, and AIG expects to use the net proceeds to reduce the balance due to the US Treasury Department’s preferred equity interest in a special-purpose vehicle (SPV) in which AIG holds the AIA shares.
The US Treasury owns 77 per cent of AIG following a massive US$182-billion bail-out in the wake of the 2008 global financial crisis. AIG holds around a one-third stake in AIA which, at Friday’s close, was worth US$14.9 billion.
As of end-December, AIG owed the Treasury US$8.4 billion to redeem interests in the AIA SPV.
Institutions may be drawn to the offering by AIA’s strong performance since it listed in a US$20.5-billion Hong Kong IPO in 2010 – Asia’s third-largest public listing – but a big run up in its stock price may have some feeling the offer is expensive.
But, with such a large sale on to the market and AIA’s free float increasing, the company’s weighting on benchmark indexes should rise, making it 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, Hong Kong-based analyst at CCB International Securities, said the sale looked well timed.
“AIG is doing this at the right moment. If you look at AIA’s new business growth last year, it went up 40 per cent. 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 (JGCs), according to two sources with direct knowledge of the process, who did not want to be named as they are not authorised to speak publicly on the matter.
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” JGC roles in the current AIG sell-down.
The distinction is important not just for the fees that are paid on such a large offering, 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 of buyers, the source noted.
Shares of AIA, headed by former Prudential Plc executive Mark Tucker, have risen 47 per cent since early-October, and last week touched a 7-month high. The shares closed at HK$29.20 on Friday.