American International Group (AIG) last night completed its exit from Hong Kong-listed AIA Group through a HK$50 billion ($6.4 billion) share placement that attracted huge demand and was priced at a pretty tight 4.3% discount.
The deal trumped AIG’s $6 billion sell-down in AIA in March to become the largest equity transaction in Asia this year and the second-largest block trade ever after Vodafone’s $6.6 billion exit from China Mobile in September 2010. It was also done at a significantly higher absolute price than the March sale — a fitting end to AIG’s highly successful and disciplined divestment of its former Asian life insurance unit that began with the initial public offering just over two years ago.
AIA’s share price had continued to edge higher after AIG’s second post-IPO sell-down in September and Friday’s closing price was just 0.5% below the record high of HK$31.80 that the stock hit in early November. It is also 16.6% above the placement price in March.
The latest deal was completed in much the same way as the March transaction in the sense that accounts were wall-crossed over the weekend and the bookbuilding took place during a 12-hour period yesterday while the stock was suspended. However, being a clean-up trade and probably the last large supply in AIA for some time, the demand was stronger this time and according to sources the deal was already fully covered when the order books opened at 8.40am Hong Kong time yesterday.
Orders continued to flow in during the day and when the books closed at 9pm, sources estimated that more than 350 investors had come into the deal, including the 30 or so accounts that were wall-crossed beforehand. The total order amount was said to be close to $20 billion, which is particularly impressive given that we are just one week away from Christmas. It also suggests that there could be good support in the aftermarket as well, as investors react positively to the fact that the final overhang from the AIG sell-down has now been removed.
The sale comprised approximately 1.649 billion shares, or a 13.7% stake in the company. They were offered at a price between HK$29.65 and HK$30.65, which represented a discount of 3.15% to 6.3% versus last Friday’s close of HK$31.65.
The price was fixed in the upper half of the range at HK$30.30 for a 4.3% discount. This was significantly tighter that the 7% discount that AIG achieved on its first sale in March, which may be partly explained by the increase in AIA’s free-float and daily liquidity since then. Rather than focusing just on the discount though, sources noted that many investors were looking at, and were comfortable with, an absolute price around HK$30.30. Shortly before the deal closed, the two active bookrunners were telling investors that they needed to step up to that level if they wanted to get shares, effectively moving existing price limits higher.
A large portion of the demand came from global funds, many of which put in very large orders, and there was also a good showing from Asia-based hedge funds, one source said. Including private wealth management and broker accounts, about half the demand may have been generated out of Asia, while US and global funds accounted for the majority of the rest, the source estimated.
Another source said the buyers also included existing shareholders, financial specialists and some sovereign money.
In light of the strong demand, it does seem a bit excessive to have had the entire deal covered at launch, but that too appears to have been a case of investors jumping at the chance to get a meaningful portion of the deal. According to sources, the hit-rate during the wall-cross process was very high and many of these accounts also wanted more shares than expected.
Aside from the fact that it was a clean-up trade, AIA is a name that investors like and have had a positive experience with ever since the $20.5 billion IPO in September 2010. The company has continued to turn out good operating numbers and even with the overhang from AIG’s expected exit, the share price has gained 61% since the listing.
According to Bloomberg, 18 of the 24 analysts who cover the company has a “‘buy” rating on the stock. Two analysts are neutral, while four recommend investors to sell.
The company, which has a presence in 16 countries in Asia, said its value of new business increased 22% in the third quarter to a record $300 million and its underlying annualised new premium grow by 17% to $696 million in the same period. This came on the back of record earnings in the first half. On the same day that it announced its third quarter results, AIA said that it has agree to buy ING’s life insurance business in Malaysia — a move that will make AIA the number one life insurer in that country, which has a fast-growing and highly profitable insurance market.
Despite continuing to praise the quality of AIA and its strong positioning in the Asian market, AIG has now sold its entire stake in the company as part of a broad-based divestment programme aimed at rebuilding its balance sheet and repaying the $182.3 billion of bailout funds that it received from the US government in 2008.
Just last week the US government, via the Treasury department, sold its last remaining AIG shares through a placement, raising $7.6 billion. The government, and the US taxpayers, have now recouped the entire $182.3 billion plus an additional $22.7 billion, making the bailout of AIG one of its more profitable actions during the financial crisis. The US Treasury still owns warrants that entitle it to buy 2.7 million AIG shares, which at the current market price is worth about $92 million.
In a statement issued yesterday, AIG said the proceeds from its latest sale of AIA shares will be used for general corporate purposes.
Having exited its own life insurance unit in Asia, AIG is now expected to put more focus on its other investments in the region. Only a few weeks ago the US firm invested $500 million into PICC Group’s IPO in Hong Kong as one of 17 cornerstone investors and agreed to set up a nationwide joint venture together with PICC that will focus on distribution and re-insurance. AIG also already owns a 9.9% stake in PICC’s Hong Kong-listed non-life insurance arm, PICC Property and Casualty.
AIG reduced its stake in AIA to 33% through the IPO and has now sold the rest through its three block trades this year. As mentioned, the first trade in March amounted to $6 billion and was priced at a 7% discount to the latest close, resulting in a price of HK$27.15 per share.
The second trade in September raised $2 billion, and was price at HK$26.50 per share, which translated into a 0.8% premium to the latest close. That transaction was just named as the Deal of the Year and the Best Secondary Offering in 2012 by FinanceAsia partly because of the well-thought out decision to sell fewer shares than expected to create a favourable supply/demand dynamic that helped push up the price and maximised the proceeds for AIG.
As with the first two blocks, Deutsche Bank and Goldman Sachs were joint global coordinators on yesterday’s deal and the only two banks that were actively taking orders from investors. However, this time the top lines in the syndicate were cut back substantially from nine banks on the previous two deals. There were no other global coordinators and only three joint bookrunners: Citi, J.P. Morgan and Morgan Stanley.
