AIG's Asian Life Insurer IPO: Overwhelming Institutional Demand?

AIA, AIG's Asian life insurer
AIA, AIG's Asian life insurer

Institutional demand for American International Group's (AIG) $15 billion initial public offering for its Asian life insurance unit AIA is so strong that AIG may close it to institutional buyers two days earlier than planned, according to a Reuters report.

AIG, one of the high-profile beneficiaries of the massive U.S. bailout of Corporate America, is said to have strong interest from a large Chinese sovereign wealth fund, China Investment Corp., as well as from China Life Insurance, Ping An Insurance and Taikang. The IPO order book is now expected to close to institutional buyers on Oct. 19, a day after it had opened to retail investors.

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Demand among mom-and-pop investors apparently isn't as strong, according to the report. Local banks didn't have to contend with long lines of prospective retail investors, whereas other past hot IPOs have drawn a crush of crowds. That lackluster enthusiasm remained tepid despite offers from banks for record-low interest rates on margin loans for retail investors, the report noted.

The conflicting interest between institutional and retail investors may explain the poll results last week that predicted AIA's IPO would likely price in the middle of its price range, at HK $19.14 a share. Red-hot IPOs tend to price above their initial range.

AIG, which is expected to sell about 50% of its AIA stake, plans to launch the IPO at the end of the month. For U.S. taxpayers, that could be good news. The federal government owns approximately an 80% stake in AIG, which is seeking to repay the $182.3 billion in bailout funds it received.