AIA prices bond under new insurance framework
Deal follows a one-notch rating upgrade from S&P Global Ratings
1 Apr 2021 | Chito Santiago

The pan-Asia life insurance company AIA Group returned to the US dollar bond market when it priced on March 30 a US$750 million resettable subordinated perpetual securities – just after the start of a group-wide supervision framework and regulatory regime for insurance-linked securities business in Hong Kong.

The Reg S perpetual non-call five-year deal was priced at par with a similar coupon and re-offer yield of 2.70%. This was 42.5bp tighter than the initial price guidance of 3.125%.

The deal garnered a total order book of over US$4.9 billion from 203 accounts with 90% of the bonds sold in Asia and 10% in Europe. By type of investors, asset and fund managers accounted for 70%; sovereign wealth funds, public entities, insurance companies and pension funds 23%; private banks and others investors 4%; and banks and financial institutions 3%.

The bond was drawn from AIA’s US$12 billion global medium-term note and securities programme with the proceeds to be used for general corporate purposes. HSBC, Morgan Stanley and Standard Chartered were the global coordinators for the transaction as well as joint bookrunners along with ANZ, Citi and Goldman Sachs.

AIA last accessed the US dollar bond market in September 2020 when it printed a US$1.75 billion fixed-rate subordinated securities, which represented the first tier-2 capital from the company in the expectation that the notes would qualify as tier-2 regulatory capital under the group-wide supervision framework, which was being worked out at that point in time.

The latest bond offering also came after AIA secured a one-notch rating upgrade from S&P Global Ratings to A+ from A with stable outlook. In announcing the rating action on March 29, S&P Global notes that AIA has built up its liquid assets, which reduces its reliance on cash flows from its operating subsidiaries to meet its growing, albeit still low, debt obligations. The company has also established a strong record of dividend remittances from its operating subsidiaries in various jurisdictions over the years since its listing in 2010.

“We expect AIA to maintain strong liquidity buffers at the holding company level,” S&P Global says. “This ample liquidity together with its diversified dividend income streams places AIA Group in a better position to service its obligations.”

About a week earlier on March 24, AIA announced the formation of a new exclusive 15-year bancassurance partnership with The Bank of East Asia (BEA) covering Hong Kong and China. As part of the transaction, AIA will also acquire 100% of BEA’s wholly-owned subsidiary BEA Life and the legacy portfolio of life insurance policies underwritten by Blue Cross (Asia-Pacific) Insurance. AIA is paying a total consideration of HK$5.07 billion covering both the BEA Life acquisition and the exclusive 15-year bancassurance partnership for life and long-term savings insurance solutions.

The addition of BEA as a new strategic distribution partner further strengthens AIA’s competitive advantages across the Guangdong-Hong Kong-Macau Greater Bay Area.