Following the biggest IPO in Hong Kong, American International Assurance Group Ltd. (“AIA”), the Asian life-insurance unit of American International Group Inc. (AIG), was successfully listed on the Hong Kong Stock Exchange, gaining as much as 12% at HK$22.05 (Hong Kong dollars), up from its IPO price of HK$19.68 on debut.

AIA’s IPO was closed two days ahead of schedule after being swamped with orders from Chinese investors. AIG raised $17.9 billion, as it sold a 58.4% stake in AIA by offering 7.03 billion shares priced at HK$19.68 ($2.53) each. The AIA shares were sold at the top range of HK$18.38 to HK$19.68 on October 22 and the offer was subscribed 9.62 times.

However, AIG has the option to boost the sale by as many as 1.05 billion more shares during AIA’s first month as a listed company, taking the IPO size to $20.5 billion and cutting its stake to 33%. But AIG agreed to hold at least a 30% stake in AIA for a year, post-listing.

AIA operates across 15 markets in Asia with 309,000 agents and has wholly-owned entities in China, Indonesia, Malaysia, Thailand and Vietnam. Further, AIG has 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 out in its prospectus.

AIA went public after AIG’s plans of disposing it to Britain’s Prudential plc (PUK) for $35.5 billion in May was abandoned. The deal fell through as AIG declined accepting Prudential’s offer of $30.4 billion on claims of undervaluation.

AIG has been attempting to sell off its business in order to repay the bailout money and free itself from pay restrictions. The stronger-than-expected debut of AIA will thus help AIG to repay the roughly $100 billion it still owes the U.S. government.

AIA’s IPO proceeds are also expected to increase the book value of AIG, given the capital gain from the sale. Going forward, we believe that AIG will now have to stand on its own feet once again, while maintaining ample liquidity and re-establishing itself in the industry. This is also important to restore shareholder confidence.

However, we continue to remain cautious of the large amount of intangible assets on AIG’s balance sheet. Moreover, it also remains highly crucial for AIG to manage its already high debt, especially from the government bailout loan.

 
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