American International Group Inc.
) announced a joint venture (JV) with PICC Life Insurance Co.
Ltd. (PICC Life) in collaboration with The People's Insurance Co.
of China Ltd. (PICC Group). The JV attempts to help AIG reach out
to the second largest global economy of China.
Accordingly, the JV is based upon the condition that AIG will
contribute $500 million by buying the H shares of PICC Group.
This China-based insurance company is soon going public at the
Hong Kong stock exchange through an initial public offering (IPO)
that is projected to be worth $3.6 billion. PICC Group has
subscribed about 50% of its shares to cornerstone investors and
AIG. This company already holds a 9.9% stake in PICC Group's PICC
Property and Casualty Co. Ltd.
Moreover, AIG will retain at least 75% of the $500 million
shares for 5 years post IPO. However, if the JV fails to be
effective by May 2013, then the company will be free from any
bond to retain shares.
PICC Group is the fourth-largest insurance company in China,
and this particular feature enhances the growth prospective for
AIG through this new JV. It will also boost the company's
distribution of life and other insurance products, thereby
escalating growth opportunities in its core businesses.
The joint collaboration also complements AIG's growth strategy
of international expansion. Previously, the company had to
abandon its pan-Asian unit - AIA Group Limited (AIA) - since the
company had to liquidate in order to repay the $182.3 billion
government bailout loan in the US. AIG now owns only about 13.7%
Nevertheless, the risk of increased competition also remains a
lingering concern, particularly with its own arm - AIA - and with
the peer group including
Prudential Financial Inc.
Hence, we remain on the periphery at the moment to analyse the
managerial and financial developments at AIG and its wings going
ahead. Consequently, we maintain a long-term Neutral outlook on
AIG with Zacks Rank #3, which implies a short-term Hold rating
and indicates no clear directional pressure on the stock in the
AMER INTL GRP (AIG): Free Stock Analysis
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis
To read this article on Zacks.com click here.