American Insurance Group stunned markets on Saturday with an accelerated bookbuild offering of shares in Chinese insurance firm PICC Property & Casualty that raised a whopping HK$9.7 billion ($1.25 billion).
In an unusual move the trade was launched on the first day of an extended three-day weekend, shortly after the Chinese insurer announced its first-quarter results on Friday.
Bankers familiar with the deal said that its execution on a non-trading day was extraordinary, not least because of the scale of the equity transaction. One, though, told FinanceAsia that AIG had few alternative options to execute the trade given Monday's Labour Day holiday in China and Hong Kong.
By executing the trade over the weekend it is now theoretically possible for AIG to carry the proceeds from the PICC P&C stake sale onto its balance sheet before it announces its first-quarter earnings after US market close on Monday.
The US insurance group booked a post-tax operating loss of $1.3 billion in the fourth quarter of 2015, reversing a $1.4 billion operating profit in the same quarter in 2014.
Saturday’s deal came nearly five months after AIG’s second selldown of PICC P&C shares, having bought a 9.9% stake in the Chinese insurer in 2003. The sale of 361 million shares was completed in December last year at HK$16.14 per share and raised a total of $752 million.
AIG’s first PICC P&C sale happened in March last year when the company sold 254 million shares at HK$15.15 each and raised $500 million.
Terms and allocation
Under the initial terms of the latest deal, 740 million PICC P&C shares were offered at an indicative price range of HK$13.06 to HK$13.35 per share, representing 5% of PICC P&C’s outstanding H-share capital.
To underline the scale of the transaction, the number of shares sold was almost 35 times bigger than PICC P&C’s three-month average trading volume of 21.3 million shares and bigger than the two last deals combined.
It is also Asia’s biggest block trade -- the only one worth more than a billion dollars -- so far this year.
The syndicate collected orders totaling several billion dollars from over 100 accounts when the book closed on Saturday during Asian afternoon hours, according to a second banker familiar with the situation.
Final pricing was settled slightly off the bottom of the range at HK$13.08 per share, representing a 7.9% discount from PICC P&C’s HK$14.2 Friday close.
AIG had already been widely tipped to sell its remaining stake in PICC P&C, so the transaction was borne mainly out of reverse enquires from several large accounts, the second banker said.
As such, the final allocation was highly skewed towards these anchor orders with approximately 70% of the deal ending up in the hands of the top 10 accounts. Roughly 40% of the deal was allocated to long-only investors.
The strong demand could partly be driven by the removal of a large overhang on the stock. AIG will be left with 110 million PICC P&C shares after Saturday’s sale, or roughly $200 million at the current market price. That equates to only five days three-month average volume.
AIG will also be subject to a lockup of 60 days for the remaining shares.
Goldman Sachs and Morgan Stanley were joint bookrunners of the transaction.
Uncertainties ahead
PICC P&C lost a third of its value after AIG’s December share sale, hitting a low of HK$11.32 in mid-February. But the shares have gained momentum since then and recovered about half of the loss.
That said, the non-life insurance division of PICC’s first-quarter net profit showed a 41% deterioration compared with the same quarter of 2015, falling to Rmb4.25 billion ($656 million). The results posted after the close on Friday might put pressure on the stock's performance.
Moody’s in a report in March also said that the Chinese insurance sector as a whole could be negatively impacted by government reform objectives to introduce more market discipline since it could mean weaker support for state-owned insurance companies.
Moody’s credit outlook on PICC P&C and seven other Chinese insurers was downgraded to negative to stable in March.
