Banks to pocket as much as $355 million in AIA IPO: sources

By Kennix Chim and Denny Thomas

HONG KONG (BestGrowthStock) – American International Group Inc (AIG.N: ) is expected to cap the underwriting fees for the AIA Group Ltd IPO at 2 percent, helping the 11 underwriters to earn as much as $355 million, sources familiar with the matter told Reuters on Friday.

The underwriting commission is expected to be paid on the base offer of up to $14.86 billion, plus a 20 percent upsize option, that would result in AIG raising $17.83 billion from the IPO based on the top end of the indicative price range.

Including the greenshoe, the offer could raise as much as $20.5 billion, putting it on course to become the world’s third-biggest IPO ever. There is no fee payout for the greenshoe component.

Stock underwriting in Asia is a lucrative business for investment banks, as fast growing companies have rushed to the public markets in the last few years when stock prices have soared.

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.

AIG is expected to pay 1.75 percent as base fee and an extra 0.25 percent as performance fee, two sources said. The performance fee, which is at the discretion at the issuer, is usually based on the quality of the book, the pricing of the offer among other factors.

The sources declined to be identified as the fees were not yet publicly disclosed. An AIA spokeswoman declined comment. The IPO expenses will be disclosed in the final prospectus that is expected to be released next Monday along the with the launch of the public offer, the sources said.

Issuers typically pay up to 3.5 percent as underwriting fees to banks for Hong Kong initial public offerings. But for mega offerings, such as Agricultural Bank of China Ltd (1288.HK: ), the overall commissions were lower due to the large size.

Banks earned about $250 million in fees from AgBank’s (601288.SS: ) record breaking $22.1 billion IPO earlier this year, which was the lowest underwriting payout by China’s big four banks.

AIA’s offer is handled by 11 banks. Citigroup Inc (C.N: ), Deutsche Bank AG (DBKGn.DE: ), Goldman Sachs Group Inc (GS.N: ) and Morgan Stanley (MS.N: ) (Read more about the money market today. ) are the joint global coordinators.

Barclays Capital (BARC.L: ), Bank of America Merrill Lynch (BAC.N: ), CIMB Securities, Credit Suisse (CSGN.VX: ), ICBC International, JP Morgan (JPM.N: ), UBS AG (UBSN.VX: ) are the joint book runners.

It is not clear how much each bank will earn, but the four joint global coordinators are likely to share a lion’s share of the commission.

Asia has seen a flurry of IPOs over the past two months, with issuers encouraged by the strong gains in stock markets driven by robust foreign inflows.

(Reporting by Kennix Chim and Denny Thomas; Editing by Michael Flaherty and Jacqueline Wong)

Banks to pocket as much as $355 million in AIA IPO: sources