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AIA to Make Its Debut as Hong Kong's Largest IPO

AIA shares look set to rise around 10 percent on the first day of trade on the Hong Kong stock exchange. According to CNBC sources, the stock was being traded at HK $21.65 ($2.79) in the gray market ahead of the listing on October 29.

People arrive for the AIA group limited global offering in Hong Kong on October 6, 2010.
MIKE CLARKE | AFP | Getty Images
People arrive for the AIA group limited global offering in Hong Kong on October 6, 2010.

Alvin Cheung from Prudential Brokerage sees upside in AIA stock in the medium term, with a price target of HK$21, but warns short-term investors to look out for share price volatility.

The Asian life insurer raised $17.8 billion dollars from the share sale, which marks a milestone for its parent American International Group, or AIG, in its restructuring and attempts to repay a government bailout.

If the over-allotment option is exercised, total funds raised could increase by a further 15 percent, which would help rank the IPO as the world's third largest on record globally.

Feeding off of strong appetite from investors, AIA shares were priced at the top of its indicative range, at HK$19.68, valuing the company at $30.5 billion dollars or 1.32 times its embedded value for 2010.

Retail investors who subscribed for one board lot of AIA's offering have a 60 percent chance of receiving shares, sources said. Those who applied for two lots will receive at least one in the Hong Kong's largest IPO.

The Asian insurer managed to secure an impressive group of cornerstone investors, including the Kuwait Investment Authority, Malaysia's Guoco Group, Chow Tai Fook and New World Development, both controlled by Hong Kong tycoon Cheng Yu-tung and ports-to-telecom conglomerate Wharf. The combined $1.9 billion dollars commitment will be subject to a six-month lock-up period.

Richard Harris, chief executive of Quam Asset Management says it's AIA's exposure to China and Asia that sets it apart from other insurance plays listed in Hong Kong, like Prudential, China Life and Ping An Insurance.

Harris is confident that as the Chinese market continues to grow, AIA is well-positioned to take a big slice of the pie. And the new management, spearheaded by CEO Mark Tucker, formerly the chief at Prudential, will offer a good platform for pursuing business in the future, with some saying even the possibility of a bid for Prudential's Asian operations.