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Hong Kong Gears Up for Largest-Ever IPO

This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.

Hello to our viewers across China.

I'm Saijal Patel from CNBC and you're watching “Asia Market Daily”.

AIA, the only foreign life insurer to operate a 100 percent-owned unit in China, is about to make history.

The company - owned by American International Group - will make its $17.8 billion debut tomorrow becoming the biggest IPO to hit the Hong Kong market.

As well as having offices in Beijing, Shanghai and Shenzhen, AIA also operates in the Guangdong and Jiangsu provinces.

But its share of China's insurance market has eased from 1.5 percent in 2004, to 0.69 percent this year.

And there are concerns about future earnings growth.

CNBC's Emily Chan reports.

(Package starts)

The share sale values AIA at $30.5 billion, making it the number 7 insurer in the world by market capitalization. AIA's Chief Executive Mark Tucker says strong reception of the shares underscores the attractiveness and uniqueness of the franchise.

The stock was 9 times oversubscribed by institutional investors, with sources saying the strongest demand came from Asia. And it included sovereign wealth funds in China, Kuwait and Malaysia.

(SOT) Richard Harris, Chief Executive, Quam Asset Management

“AIA is going to be more pan Asian. But of course that has a lot of interest to outside investors, because although investors in China may say well AIA doesn't have a big foothold in China. First of all there's a possibility that they will and the second thing is international investors are looking for much more of the longer term. AIA gives them an exposure to China that's quite important, and an exposure to Asia that's quite important.”

Only 10 percent of the offer was allocated to retail investors given that demand wasn't as strong as other popular IPOs like Sihuan pharmaceutical. But Institutional interest was solid given the expectation that the stock could be included in numerous market indices.

That's despite the stock being priced at the top of the indicative range at HK$19.68. That values AIA at 1.32 times its embedded value for 2010, much cheaper than mainland insurers.

(SOT) Alvin Cheung, Associate Director, Prudential Brokerage:

“In the medium to long run, AIA's share is worth about $21. When you compare that to the IPO price of $19.68, there is still some room for it to go up.”

But there is the question of how quickly AIG will sell more shares - for the moment though it's locked up for 12 months. Cheung is also concerned about the insurer's growth potential, given that it won't benefit from any of the funds raised in the IPO.

(SOT) Alvin Cheung, Associate Director, Prudential Brokerage:

“We can see that all the money raised will be used to repay the US government. So I'm not too optimistic that its business will grow a lot within a short timeframe.”

But others feel AIA is well positioned to capitalize on the Asia story.

(SOT) Richard Harris, Chief Executive, Quam Asset Management:

“In terms of where they can go in Asia, and the potential they have, the platform they have in Asia. So I think the future probably looks quite bright.”

The listing not only gives AIA a fresh start. Some believe with Mark Tucker, Prudential's former Chief at the helm, we could see the possibility of it bidding for Prudential's Asian operations.

Emily Chan, CNBC, Hong Kong.

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Despite the recent slowdown in economic growth, Chinese firms are feeling upbeat about the outlook ahead, with the majority planning to increase headcount.

New research - by global recruitment firm Michael Page International - shows two thirds of businesses on the mainland will hire more staff in the fourth quarter.

That's ahead of their counterparts in Hong Kong and Singapore.

But as all these companies go on a hiring spree, the shortage of skilled talent is expected to push up China's wages, even further.

62 percent of firms concede a professional skills shortage will be a challenge for their business next year.

While 38 percent consider staff retention a "major business concern" - and are placing an emphasis on keeping good talent.

The lack of white-collar workers puts pressure on China's already tight labor market.

Factories in many provinces - such as Guangdong - have been experiencing a shortage of unskilled workers, since the beginning of the year.

The problem has even spread further out from the country's industrial heartland, to under-developed western provinces like Ningxia, Gansu and Shaanxi.

And companies are also battling a slower than expected recovery in the US and Europe - with 17 percent of firms admitting they've been affected "significantly".

But it's not all gloomy. Just over half say performance over the first three quarters of the year have "exceeded expectations".

And 51 percent expect business conditions to improve in the fourth quarter.

(SOT) Dan Chavasse, Managing Director of Greater China and South East Asia, Michael Page International:

“We're seeing levels of confidence which we haven't experienced since 2008 in North Asia, and that's across all sectors, so broadly speaking, the picture is very encouraging. The trend is very strong in property, in luxury products, in consumer products, in China, in Singapore and Southeast Asia, more bio tech and pharma focused. The only sector which we're seeing a slight softening in demand and we're not yet sure whether it's seasonal, or whether it's more broadly based, is in investment banking.”

That wraps up today's business news.

I'm Saijal Patel from CNBC, good night.

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