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BOC in the fray for AIA assets

By Yang Zhen (China Daily)
Updated: 2009-02-13 08:55

Bank of China (BOC) has emerged as the preferred choice of the Chinese government as a potential bidder for American International Assurance (AIA), the Asian life insurance unit of American International Group (AIG).

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Wang Zhaowen, BOC spokesman, when contacted said he was not aware of the lender's potential bid for AIA.

China's policymakers are believed to have favored BOC over China Life, the world's largest insurer, as a bidder because of its experience in managing foreign assets.

The estimated $20 billion price tag for AIA assets may also be too high for China Life to bear, said Deng Ting, analyst, Guodu Securities.

China Life's total assets were 946.4 billion yuan ($138.5 billion) as at the end of September 2008, according to the insurer's latest financial statement. It is dwarfed by Bank of China's figure of 6.6 trillion yuan.

Deng, however, is of the view that BOC needs to be cautious before it decides to take the plunge.

"The global financial crisis is far from over. It's hard to assess AIA's value. The actual amount that BOC will pay for the assets is going to be the crucial factor for viability," Deng said.

The size of AIA could also force potential buyers to form a group and divide the assets among them, the Financial Times reported. Deng said that the division of assets would be beneficial for BOC.

"BOC already has its own insurance subsidiary running in China. It would be much easier for it to integrate AIA's operations instead of having to deal with the insurer's huge operations in 12 Asian countries," Deng said.

AIA has 20 million policyholders across 13 Asian countries and employs 200,000 agents. Last year it made an operating profit of about $2 billion.

The auction of AIA was triggered by the need to repay a five-year, $60 billion government loan. AIG came close to collapse last year and was twice bailed out by the US government, which now owns 80 percent of the troubled insurer.

The other prospective bidders for AIA include HSBC, Prudential and Prudential Financial. ManuLife Financial and Allianz of Germany are also reported to be in the fray.

The government backing for BOC's bid is considered crucial at a time when the global financial markets have come under a cloud following the subprime crisis. Insurance giant AIG was one of the biggest victims of the credit crunch.

"Chinese companies have experienced a series of disastrous investments in foreign banks and insurers recently. Ping An Insurance's loss from their stake in Belgian-Dutch financial group Fortis was a good wake-up call," said Hu Jianjun, analyst, Hongyuan Securities.

Chinese insurer Ping An's 23.87 billion yuan investment in Fortis has subsequently lost more than 90 percent of its value.