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AIG marks end of era with $6.45 billion AIA stake sale

A banner for American International Group Inc (AIG) hangs on the facade of the New York Stock Exchange, Ocotber 16, 2012. REUTERS/Brendan Mc
A banner for American International Group Inc (AIG) hangs on the facade of the New York Stock Exchange, Ocotber 16, 2012. REUTERS/Brendan Mc

By Elzio Barreto

HONG KONG (Reuters) - American International Group Inc raised $6.45 billion from the sale of its remaining stake in AIA Group Ltd in Asia's second-largest block sale ever, exiting a business the U.S. insurer started nearly 100 years ago.

The sale, which priced near the top of its indicative range, marks the end of an era for AIG in Asia and its Chief Executive Robert Benmosche, who took AIA <1299.HK> public in Hong Kong in the world's third-biggest IPO two years ago.

AIG was forced to sell parts of its massive business, including AIA, after the U.S. government bailed the company out in 2008 as it teetered on the brink of collapse. The government ultimately spent $182 billion on the rescue.

AIG priced its 13.69 percent stake or 1.65 billion shares in Asia's third-largest insurer at HK$30.30 per share. The deal had been marketed at HK$29.65-HK$30.65 apiece.

That is a discount of 4.3 percent to AIA's close at HK$31.65 in Hong Kong on Friday. AIA shares fell 0.8 percent in early Tuesday trade, less than the discount, underscoring demand for the stock. Trade had been suspended on Monday at the company's request.

"There are plenty of candidates out there ready to buy into the stock," said Ping Cheng, an insurance analyst at DBS Vickers in Shanghai.

"AIA offers very solid growth outlook and has a profitable profile. The expectation is that there is plenty of growth out there. They just did an acquisition in Thailand, they're in the low penetration markets like Vietnam, Cambodia."

Shares in AIA have soared about 61 percent since the $20.5 billion IPO in 2010, and have become a top choice of fund managers looking to benefit from growing wealth in Asia and booming demand for insurance and other financial products.

The block offering, surpassed only by Vodafone plc's $6.6 billion stake sale in China Mobile <0941.HK> two years ago, comes one week after a lockup on the shares expired, adding to two other rounds of AIA share sales in September and March that had raised about $8 billion in total.

"The short time frame in which (the placing) was completed demonstrates the strength of investor support for AIA and its growth prospects," AIA's Chief Executive Mark Tucker said in a statement.

The deal also adds to a flurry of block offerings which target a select number of institutional investors and seek to bypass volatile demand from retail investors.

Those share sales have surged nearly 90 percent so far in 2012 from 2011 to $49.2 billion, according to Thomson Reuters data, helping investment banks in Asia, ex-Japan, buffer their business from a 60 percent plunge in IPOs.

OPPORTUNITIES IN ASIA

AIG, which expects to use the net proceeds from the AIA sale for general corporate purposes, has not identified the buyers.

Deutsche Bank AG and Goldman Sachs Group Inc were hired as joint global coordinators for the offering, with Citigroup Inc , JPMorgan Chase & Co and Morgan Stanley also acting as bookrunners.

AIG's exit from AIA comes at a time when Asia's insurance industry is growing, attracting buyers hoping to tap into the expansion.

A Thai conglomerate bought HSBC's stake in Ping An Insurance <2318.HK> for $9.38 billion, while Hong Kong businessman Richard Li acquired ING's Hong Kong, Macau and Thailand insurance units for $2.14 billion.

The exit has also forced the U.S. insurer to strike out on its own in Asia, where it is focusing its attention on China. AIG became the biggest cornerstone investor in the $3.6 billion IPO of People's Insurance Company (Group) of China (PICC), also inking a joint venture to sell life insurance in the world's second-largest economy.

"The AIA exit was more about returning cash to repay the government, to strengthen its domestic U.S. business," said Cheng from DBS Vickers.

"Betting on China, they're using a small part of their funds, putting on a long-term story. It's probably easier for you to have a foothold in China going through a strategic holding rather than going directly yourself."

AIG's business started in Shanghai in 1919 under U.S. entrepreneur C.V. Starr, with AIA ultimately becoming the name of its regional operation. Twenty years later, Starr temporarily relocated to the United States to avoid political instability in Asia, and following World War Two decided to run his U.S. businesses from New York. They came to be known as AIG, whose shares began trading on the New York Stock Exchange in 1984.

AIA has built a sprawling and successful business across the region, with an army of hundreds of thousands of agents competing head-to-head with Prudential in several countries.

AIA's 2010 IPO came after a failed takeover offer from Prudential Plc .

On Friday, the U.S. Treasury Department said it has completed its final sale of common stock in AIG, cutting its shares in the insurer to zero four years after the bailout.

(Additional reporting by Fiona Lau of IFR, Michael Flaherty and Chyen Yee Lee; Editing by Ryan Woo, Phil Berlowitz and Edwina Gibbs)

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