A block of shares in Hong Kong-listed AIA Group was up for sale last night, but it didn’t come from American International Group. The US insurance company still owns 13.7% of AIA, which it will be free to sell after its latest lockup expires this week.
This deal was significantly smaller than what AIG is expected to bring — its entire remaining stake is currently valued at $6.4 billion — but that didn’t mean it attracted any less interest. In fact, halfway through the bookbuilding a source described the response as a “blow-out”. And that was despite the fact that it was offered at a tight discount.
The deal accounted for just 0.8% of the outstanding share capital but based on the final price, it raised HK$2.76 billion ($356 million), making it the second biggest placement in Asia in the past month after HKEx’s $1 billion follow-on last week. The seller was listed as Mount Swettenham Investments, which is a unit of Malaysian investment company Khazanah Nasional.
The offering comprised approximately 92.35 million shares, which represented Khazanah’s entire stake in the pan-Asian life insurance company and about four days of trading. The shares were offered at a price between HK$29.84 and HK$30.20, which at the bottom of the range translated into a discount of just 1.2%. The top of the range was equal to yesterday’s closing price.
The discount was particularly tight considering that AIA’s share price gained 2% yesterday on a generally strong day for Hong Kong and China stocks that was driven by hopes for reforms by China’s new leadership. Chinese insurers were also in focus after HSBC’s sale of its stake in Ping An Insurance.
So, it was no surprise that the price was fixed at the bottom of the range for the maximum 1.2% discount. Based on the day’s volume-weighted average price (VWAP), the final price equalled a discount of just 0.63%.
According to a source, the demand was heavily skewed towards long-only investors, which suggests that the strong interest didn’t stem from a need to cover short positions. Otherwise, one might have thought that some players would have started to position for another big sell-down by AIG. Before yesterday’s gain, AIA’s share price had dropped 6.9% from a 2012 high of HK$31.80 on November 2.
The deal attracted about 50 investors and the source said pretty much all the key global funds in Asia, Europe and the US were represented in the order book.
Contrary to many other recent block trades in Asia, this deal didn’t have any anchors lined up before launch as it was bid out only after the Hong Kong market closed yesterday. However, it seems that was not a problem.
Khazanah bought its AIA shares when the company went public in October 2010 and based on the IPO price of HK$19.68, it would have realised a gain of 51.6% through yesterday’s sale.
AIG has reduced its stake in AIA twice this year, through a $6 billion block in March and a $2 billion trade in early September. The latest deal was a lot smaller than expected, which the company successfully used to create price tension among investors. The price was finally fixed at a 1.7% premium to the latest close.
The shortage of stock, compared to what investors had been expecting, also led to a 6.8% jump in the share price the following day as market players scrambled to cover their short positions. And the stock continued to head higher in the next couple of months. Even after the slight retraction in the past month, the share price is still 14.8% higher now than it was just before AIG’s sale in September.
The US insurer is expected to sell the rest of its AIA shares as well, as part of its efforts to buy back the rest of its own shares from the US government. Through the US treasury department, the government still owns 15.9% of the company — the final legacy of its $182.3 billion bailout of AIG in 2008.
Bank of America Merrill Lynch was the sole bookrunner for Khazanah’s exit last night.
