AIA IPO: Banks eye a cool $308 million

HONG KONG: Banks underwriting AIA Group’s IPO will pocket $308 million in fees at the middle of the price range, the prospectus showed on Sunday, with more to come when American International Group makes its full exit.

Total fees for the 11 banks could reach $355 million if the offer were sold at the top of the indicative range, making it the second-biggest fee event for underwriters of an Asian IPO, according to Thomson Reuters data. AIG agreed to pay 1.75% as gross underwriting commission on the aggregate offer price.

The cost to AIG will have been softened by the $240 million break fee it received earlier in the year from Prudential after the British insurer failed in its efforts to buy AIA. For now, ICBC’s $21.9 billion IPO in 2006 still tops the list of fee earners in Asia, with an underwriting commission of $383.9 million, according to Thomson Reuters data.

If the AIA IPO raises up to $20.5 billion as planned, investment banks in Asia are set for a bumper year for payouts.
China’s state-owned Agricultural Bank of China already paid $248 million in commission for its record-smashing $22.1 billion IPO in July. Deutsche Bank, Goldman Sachs and Morgan Stanley are the three common underwriters to figure as the joint global coordinators on both the mega issues this year.

Asian IPOs have raised about $90 billion in the first three quarters of 2010, according to data compiled by Thomson Reuters, more than double the combined total from the United States, Europe, the Middle East and Africa.

For AIG’s dream team, the party is far from over. Depending on the stake AIG will be eventually left with in AIA, there will be sell-down opportunities a year on. “Ultimately, it’s clear that AIG wants a clean exit. That is no secret,” one source familiar the IPO process said. “So, people will be sniffing around for block trade opportunities after the one-year lock-up period is over,” the source added.

Even if AIG exercises the upsize and the greenshoe option in full, the bailed-out insurer will be left with 33% of AIA, which it can’t sell for a year after the listing, scheduled to start trading on October 29.

Hence, AIG’s at least $10 billion stake in AIA after the Hong Kong listing will be a hotly contested deal in the fourth quarter of 2011, bankers said. However, it is too early to say whether AIG will sell down in one go or exit gradually over a period of time, they said.

“AIG’s objective is to maximum returns. A lot of factors including the market conditions at that time will play a crucial role in determining the exit strategy,’’ another source added.

The commission for a block trade is far lower than for IPOs, however. On average, the fee for block trades range between 0.5 and 1.5%. That means AIG’s 33% stake could generate up to $150 million in fees.

And as Vodafone’s $6.5 billion sell-down of its China Mobile stake showed, such deals are not without risks. Goldman Sachs, Morgan Stanley and UBS, three banks involved with the China Mobile block trade, were saddled with about $2 billion worth of unsold shares.

For now, some analysts are concerned about the impact AIG’s shareholding will have on AIA shares after the listing. “Should the proposed listing of AIA be only partial, the subsequent exit by AIG may create pressure in secondary trading,’’ CLSA analyst Patricia Cheng said in a report earlier this month.

But AIA CEO Mark Tucker was unconcerned on Sunday. “AIG are clear in terms of their divestment ... This is not an issue in any of the conversation that we have had,’’ Tucker said.