Earlier this year American International Group, Inc. (NYSE:AIG) turned down an offer of about $30.5 billion from Britain’s Prudential PLC (NYSE:PUK) for AIG’s Asian insurance group, American International Assurance Group Ltd. (AIA). Prudential had originally offered $35.5 billion, but reduced the value of the deal when its shareholders demurred, and AIG walked away.
Now it appears that the bankrupt insurer will be lucky to get even a $30.5 billion valuation in a scheduled IPO for AIA on the Hong Kong Stock Exchange. Kuwait’s sovereign wealth fund has agreed to become a cornerstone investor in the IPO, but at a valuation that tops out at the once-rejected $30.5 billion.
AIG has set an indicative price range of HK$18.38-HK$19.68 (US$2.37-US$2.54), according to Reuters. At that level, the IPO valuation falls in the range of $28.5-$30.5 billion. AIG plans to sell approximately 49% of AIA in the offering, raising $13.9-$14.9 billion which AIA would use to repay part of the remaining $90 billion lent to it by the US government. A 15% over allotment option for the underwriters could lift the total take from the offering to $17.1 billion.
The Financial Times has reported that $1.95 billion of the offering has been reserved for cornerstone investors who have agreed to hold the shares for at least six months. In addition to the Kuwaiti investment, the FT names Malaysia’s Hong Leong Group as the second largest investor. In a separate story, Reuters reports Hong Leong’s Guoco Group as having agreed to invest $370 million and Lorita Investment and Kumpulan Wang Persaraan as each having signed up for $200 million. That’s $1.77 billion, so there could still be other cornerstone investors to come.
AIG intends to use the proceeds from the AIA IPO to repay part of the $46 billion the insurer still owes to the Federal Reserve Bank of New York. AIG’s earlier sale of its two Japanese insurers to Prudential Financial, Inc. (NYSE:PRU) for $4.2 billion in cash plus $600 million in assumed debt will also be used to pay down AIG’s debt to the NY Fed.
The IPO is set to be priced and allocated on October 21st, and the offering itself is scheduled for October 29th. AIG has agreed to maintain at least a 30% stake in AIA for one year following the IPO and will not be allowed to sell any AIA shares for six months.
Even after the AIA offering, the US government will still hold a majority stake in AIG. The good news is that, with some luck, US taxpayers may make a profit on the $182 billion they lent to AIG.
Filed Under: Featured
About the Author: ZeccoPulse Senior Editor