October 27, 2010 / 12:17 PM / 7 years ago

AIA seen up 11 percent on debut after record HK IPO

4 Min Read

HONG KONG (Reuters) - AIA Group Ltd (1299.HK) is expected to post a double-digit gain in its trading debut on Friday as investors scramble for a slice of one of Asia's most recognized life insurance brands after its record Hong Kong IPO.

AIA's wide Asian footprint, strong life insurance cashflow and its large, $30.5 billion market value are some of the main draws to investors, helping the unit of AIG (AIG.N) price at the top of its indicative range last week.

A Reuters poll forecast AIA to start trading at HK$21.79 each, a 10.7 percent premium to its IPO price of HK$19.68. The estimates ranged from HK$21.00-HK$23.00. Twelve fund managers, analysts and traders participated in the poll.

"Prospects of joining some major indices (locally and in the region) have made it an attractive defensive buy among institutions," said Patrick Yiu, a director as CASH Asset Management, who expects the shares to debut between 5-10 percent higher.

AIA's market capitalization means that the stock is likely to be included in the benchmark Hong Kong stock index .HSI, generating demand from index tracking funds. CLSA estimates AIA to have a 5 percent weighting in the Hong Kong index.

AIA displaced Industrial and Commercial Bank of China Ltd (1398.HK) as Hong Kong's biggest IPO, after raising $17.9 billion last week. ICBC's $16 billion Hong Kong IPO rose 15 percent on its opening day.

AIA shares were quoted about 6 percent higher in gray market trading on Wednesday, according to traders.

Solid Start

Hong Kong has been at the center of a boom in Asian IPOs which has seen the region raise a record $124.7 billion so far this year, accounting for more than 66 percent of all global volume, according to Thomson Reuters data.

American International Group plans to use some of the proceeds of the AIA sale to pay back the roughly $100 billion it still owes the U.S. government after its 2008 bailout.

At the top end of the expected first-day price range, AIA will trade at a price to embedded value (P/EV) ratio of 1.5, while China Life (2628.HK) and Ping An Insurance Co Ltd (2318.HK) trade at P/EV of over 2 times.

AIA has the advantage of being a widely recognized name in both the home market and across much of the region.

High profile IPO names tend to get heavy interest from Hong Kong's famously aggressive retail investor pool. Stock trading is ingrained in the city's culture, from taxi drivers to shopkeepers, students to retirees.

With AIA serving more than one million policy holders through over 8,000 agents in Hong Kong alone, the company is a household name, which partly explains the demand for the stock in the gray market.

"It's a good one to hold for long. The stock should gain good support from warrant issuers," said Andrew To, a sales director at Tai Fook Securities, who expects between 8-15 pct rise on debut.

One institutional dealer said that the gray market demand for the stock is coming from traditional long only funds, while hedge funds were trimming some of their positions. He said there was large buy orders in a HK$22.00-HK$22.60 range.

Additional reporting by Chyen Yee Lee and Clare Jim; Editing by Lincoln Feast

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