AIG has been forced to lower its valuation for the Hong Kong initial public offering of AIA, its Asian business, to secure a $1bn commitment from the Kuwait Investment Authority and other cornerstone investors.
The US insurer has had to abandon its original plan of selling shares in AIA at a level that would value the company at $35 billion -$37 billion to get Kuwait’s sovereign wealth fund on board.
After lengthy negotiations, the KIA signed up to the IPO on the basis that AIA would be valued between $30bn and $32bn, according to people familiar with the matter.
Other big investors, including a number of Hong Kong tycoons, have also signed up for cornerstone stakes. In exchange for getting a fixed amount of the offering, the cornerstone investors will be subject to a six-month lock-up on their shares. Khazanah, the Malaysian sovereign wealth fund, will also take a small stake.
AIG, which is seeking to repay the US government following its $182 billion bail-out during the financial crisis, plans to sell 30-50 percent of AIA in the IPO.
The US company and its advisers were still debating on Sunday about exactly how much of the company to sell and at what price.
“They have strong views on what they want to achieve,” said one banker involved in the talks. “They are very aggressive.”
AIA was also talking with institutional investors such as BlackRock and Capital Group over the weekend, seeking to secure big investments early on in the bookbuilding process, which begins on Tuesday.
The shares will be priced and allocated on October 21 ahead of the planned listing on the Hong Kong exchange on October 29.
Feedback from a range of institutional investors has been that $32 billion is the absolute upper limit for AIA’s valuation, according to people familiar with the matter – a level that has come as a disappointment to US Treasury officials.
AIA is to be floated in Hong Kong following the collapse of a planned $35.5 billion sale to Prudential of the UK this summer. The Pru’s shareholders rejected the deal as too risky and expensive.
Investors in the Gulf have long been seduced by China. The KIA, which has emerged from the global financial crisis in better shape than some of its peers, was a cornerstone investor in the Agricultural Bank of China initial public listing earlier this year.
AIG has hired 11 bookrunners for the IPO to try to secure as much financial backing as possible. Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley are leading the deal as joint global co-ordinators.
Bookrunners in more junior roles are Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, JPMorgan, UBS, ICBC International and CIMB.