AIG's AIA IPO Closes In Advance - Analyst Blog

Given the ramp up in the demand for shares of American International Group Inc.'s (AIG) Asian life-insurance unit, American International Assurance Group Ltd. (AIA), on Monday, AIG decided to close the AIA initial public offering (IPO) two days earlier than scheduled. Consequently, the institutional book for AIA's IPO is set to close today, while raising about $20.6 billion, higher than over $15 billion previously expected.

The decision was taken on the back of strong demand, modest pricing and good positioning of AIA in the market. Moreover, AIA is well positioned in the Hong Kong and related Asian markets based on its reputation of fair performance.

Recently, AIG also forecasted operating pre-tax earnings of about $2 billion for AIA's fiscal 2010 ending this November. However, AIA is not expected to pay out dividends until the second half of 2011, as laid in its prospectus.

Given its large market share and higher operating experience in the Asian region, we believe that the operating profit projection could eventually be an achievable scenario.

Further, the IPO is expected to make AIA well-capitalized now that AIG is selling about 5.9 billion existing shares or a 48.6% of its stake in AIA, while expecting to use alternative options to vend off about 67% of its ownership in AIA in future. However, AIG is subject to a lock-in period of 6 months and must hold at least a 30% stake in AIA for a year, post the listing.

Over the last couple of weeks, AIG was successful in vending off about two-third of its stake in its Asian unit, primarily to cornerstone investors since such investors have a lock-in period of 6-12 months on their investments. As such, China Investment Corp. and other major Chinese corporations such as China Life Insurance Co. Ltd. (LFC) are among the interested investors.

Overall, it also remains highly crucial for AIG to get AIA operated in the best of circumstances since AIG is already bearing high debts, especially from the government bailout loan.