AIA Rises on First Day in Hong Kong After City's Biggest IPO
AIA Group Ltd. rallied 17 percent on its first day of trading in Hong Kong following the biggest initial public offering in the city’s history.
Shares of Hong Kong-based AIA, the insurer sold by American International Group Inc. in a $20.5 billion IPO that was the world’s third-largest on record, climbed to HK$23.05 at the 4 p.m. local time close. The stock was sold at HK$19.68 each in the IPO. Hong Kong’s benchmark Hang Seng Index of 45 companies ended 0.5 percent lower.
AIA, which priced the IPO at a cheaper valuation than its publicly traded regional rivals, listed its shares after Hong Kong’s Hang Seng Index climbed to a more than two-year high this month. AIG Chief Executive Officer Robert Benmosche sold a 58 percent stake in a unit that spans 15 Asian markets and was described by one of his predecessors as a “crown jewel” to help repay a $182.3 billion U.S. government bailout.
“Every institutional investor in the world, they’re looking for high-growth, high-quality stocks and AIA is definitely developing their business in the high-growth regions,” Lewis Wan, chief investment officer at Pride Investments Group Ltd. in Hong Kong, said in an interview on Bloomberg Television. “We’re expecting a lot of index funds will join the game.”
More than 2 billion shares of AIA changed hands today, making it the most actively traded listing on the Hong Kong stock exchange among companies whose market value exceeds HK$10 billion ($1.29 billion). The volume was six times greater than the second-most active stock, according to data compiled by Bloomberg. The shares traded as high as HK$23.15 and as low as HK$21.80.
Trading in AIA shares today totaled HK$49.39 billion ($6.37 billion), a record for a new listing on its debut in Hong Kong, the city’s stock exchange said in a statement. AIA’s turnover is the third-highest single day of trading for a stock since 1986, the bourse said.
“We’re seeing two sources of demand: institutional clients who are very much aware that because of its size it will go into the benchmarks, so they have to buy it,” Andrew Sullivan, a director of institutional sales trading at OSK Securities Hong Kong Ltd., told Bloomberg Television. “The other side is hedge funds. For hedge funds, this has been a great opportunity to get into a stock that’s seen as being in a good growth area.”
The insurer priced the shares at the top end of a HK$18.38 to HK$19.68 marketing range after it drew more than HK$1 trillion of demand from international institutions and Hong Kong individuals, said two people with direct knowledge of the matter Oct. 22.
The IPO price valued the first Asia-wide life insurer to go public at $30.6 billion, or about 1.2 times its estimated embedded value of $25.8 billion next year, according to a Sept. 24 report by Goldman Sachs Group Inc.
Ping An Insurance (Group) Co., China’s second-largest insurer, trades at about 2.3 times embedded value and China Life Insurance Co., the nation’s largest, is valued at 2.1 times, according to a Sept. 24 report by Bank of America Corp.’s Merrill Lynch & Co. unit.
“We are looking to top up our allocations,” Gabriel Yap, Singapore-based executive chairman at GCP Global Pte, said in a Bloomberg Television interview in Melbourne today. “We are quite comfortable that in terms of the valuations compared to the key insurers in Asia, particularly the Chinese insurers like China Life and Ping An, we are still getting quite good value.”
The first-day closing price values AIA at HK$277.6 billion. That is just above the $35.5 billion London-based Prudential Plc offered in February to buy AIA. The deal collapsed in June when AIG’s board rejected Prudential’s revised bid of $30.4 billion after the British insurer’s shareholders balked at the original price tag.
“It is a miss” for Prudential, Robert Morse, co-founder of Primus Financial Holdings Ltd., said in a Bloomberg Television interview today. “For Prudential, AIA has to be worth more than it is for the public. Prudential has a terrific presence in Asia already, so the combination would be enormously powerful.”
Taiwan regulators in August rejected Primus Financial’s $2.15 billion bid for Nan Shan Life Insurance Co., AIG’s Taiwan unit.
The median first-day gain among 60 companies that went public in Hong Kong this year was 7.98 percent, according to Bloomberg data.
AIG sold 7.03 billion shares in the IPO after expanding the number of shares it planned to sell by 20 percent. Today it exercised an option to boost the sale by 1.05 billion more shares, taking the IPO size to $20.5 billion and cutting its stake to 33 percent, according to a statement.
The U.S. will receive proceeds from the IPO and sales of AIG’s remaining stake in the insurer, meaning taxpayers stand to benefit from a rally in AIA shares. AIG advanced 0.1 percent to $42.01 today in New York Stock Exchange trading.
AIG, once the world’s biggest insurer, owes $19.2 billion on its Fed credit line as of this week, and about $49.1 billion to the U.S. Treasury Department. The New York-based company’s 2008 bailout swelled to $182.3 billion, a package that includes a $60 billion Fed credit facility, a Treasury investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage- linked assets owned or backed by AIG.
Investors bought into a company that operates in 15 Asian markets with 309,000 agents, 24,500 employees and more than 23 million in-force policies, according to the IPO prospectus. It commands the No. 1 position in six of the markets.
AIA traces its roots to 1919 when Cornelius Vander Starr, an American businessman, set up a fire and marine insurance agency in Shanghai. It was the first foreign-owned insurer to get a license in China, according to the company’s website.
Former CEO Maurice “Hank” Greenberg has called the company’s non-U.S. life insurance divisions “crown jewels” that couldn’t be replicated by rivals.
AIG projects that AIA will have operating profit of at least $2 billion for the year ending November. AIA had about $1.78 billion in operating profit in 2009, down from $1.87 billion in 2008, according to the IPO prospectus.
“The successful IPO marks the decisive step in our path to independence as a listed company,” Mark Tucker, AIA CEO, said in an e-mailed statement on Oct. 28. “We can now draw a line under previous uncertainty about AIA’s future and move forward with clarity and purpose.”
Benmosche, 66, who began “aggressive” chemotherapy for cancer last week, hired Tucker in July as chief of AIA.
Tucker built the Asia operations of Prudential over 15 years before becoming CEO of the London-based insurer through last year. Benmosche had clashed with AIA’s former head, Mark Wilson, over how to divest the business.
Tucker, 52, told staff at a townhall-style meeting in July that he plans to triple the unit’s value to about $100 billion, according to a person with knowledge of his remarks.
Hong Kong IPOs have raised $40.5 billion this year, surpassing the record of $36.4 billion in 2006, when Beijing- based Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. went public, data compiled by Bloomberg.
ICBC raised $21.9 billion in the world’s second-largest IPO on record. Agricultural Bank of China Ltd. of Beijing sold $22.1 billion of shares in Shanghai and Hong Kong last quarter to surpass ICBC as the biggest initial offering ever.