Anil Ambani and Prudential, Both Eyeing up AIG’s South East Asian Operations
Anil Ambani’s Reliance ADAG is thought to be interested in AIG’s Asian life insurance business, the Economic Times reported last Monday. The deal which would exclude AIG’s Indian business, Tata AIG which is a joint venture with Tata & Sons, would result in Reliance becoming the largest life insurer in Asia. Reliance is not the only one thought to be considering bidding for AIG’s Asian assets, with Prudential also rumoured to be very keen.
If Reliance did end up buying AIG’s Asian life business’s it would be the second largest overseas buyout by an Indian company. The asking price for AIA (American International Assurance), which is a wholly own subsidiary of AIG, that runs life insurance operations in South East Asian markets such as Hong Kong, Singapore Taiwan, Korea and Thailand is around US$ 10 Billion or Rs 50,000 Crore. Sources told the ET that apparently Citi had approached Reliance ADAG in order to evoke interest as a buyer, acting on behalf of AIA. AIA is AIG’s flagship business in South East Asia and is easily the region’s largest life insurer with business’s spread across multiple markets and geographies. In most markets AIG operates as AIA with the exception of Australia and New Zealand where it maintains the AIG brand.
Reliance ADAG declined to comment when contacted by the Economic Times, though sources tell the ET that the group is interested with the group aggressively expanding its financial services businesses overseas through Reliance Money, the retail brokerage and distribution arm of Reliance Capital.
Where’s The Money Lebowski??
Even if Reliance ADAG is indeed interested however, it is not immediately clear given current market conditions that it could finance a $10 Billion dollar deal. International credit markets are not functioning properly and a syndicate loan of that size in this environment would probably be next to impossible. The ET quoted its source as saying “Chances of a deal are 50:50. Reliance ADAG could be looking at a modest valuation, in the $5-6bn range. The deal is still at a nascent stage, and there’s no certainty that it will go through.”
At that kind of valuation however Reliance ADAG would face intense competition and it would be hard to see how they could compete. The most notable bidder is likely to be the UK’s Prudential, which also has an exceedingly robust Asian franchise, though without question France’s AXA would also be very interested.
Prudential Are Keen
A number of publications like the Financial Times have come to speculate on the Pru’s interest in AIG’s Asian businesses. More recently in their statements to the media, Prudential spokespersons have indicated that they are interested in more than just the Asian business’s of AIG. Mark Tucker, Prudential’s CEO in a video interview with the Financial Times was quoted as saying that they were looking right across the board at the assets of AIG. Mr. Tucker said in that interview “I think you would expect us to look at the assets in AIG as they go through their disposal process . . . I think we are at a very early stage, and I think we’re considering the opportunities and over time we will come back and discuss [them] in greater depth.”
Financing a deal in this environment however is going to be an issue for anyone considering a bid except the most cash rich investors, which at the moment are the sovereign wealth funds and legendary investor Warren Buffet. The Prudential reported at the beginning of last week that it had surplus of over a £1 Billion or Rs 7,900 Crore, though that is not going to be sufficient to fund a bid. Prudential is said to have appointed an adviser Credit Suisse to lead talks with potential investors from the Gulf and Far East. Executives at the insurer believe that a rights issue would be all but impossible in the present economic climate and are considering instead handing a 20% stake to a sovereign wealth fund to bankroll its bid.
Potential investors include the Qatari Investment Authority and any sale would mimic last year’s deal between the China Development Bank (CDB) and Barclays, whereby the CDB took a 3.1per cent stake, for €2.2 billion ($4.3 billion), to give the British bank more muscle in the bidding battle for ABN Amro, which it ultimately lost out on.
AIG, which had assets in excess of $1 Trillion in 2007, has been looking to sell parts of its businesses and assets and focus on the core general insurance business. AIG’s move to sell AIA contradicts earlier statements that it would retain a continuing ownership interest in its foreign life insurance operations.
Life insurance and retirement services business is the largest revenue generator for AIG. Out of the total revenues of $110bn in 2007, life insurance generated $53.6bn and general insurance $51.7bn. Asset management and other financial services are comparatively smaller business areas of AIG globally.
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[...] must be said though that AIG’s South East Asian assets have a speculated valuation in the region of US$ 10 billion, and potential suitors mentioned so far have been the UK’s [...]