Sale of AIA?

So Bank of China and HSBC have declined to bid for 49% stake in AIA, a USD20 billion unit with operations in Asia, including Hongkong and Singapore. The sale could potentially fetch about US$10 billion. 3 bidders are left ; Prudential, Manulife and Temasek.

Now, who would pay top dollar for a 49% non-controlling stake in a company in a fire sale by a parent company in dire straits. In the 4th quarter of 2008 alone, AIG lost USD60 billion! So, even if the sale of AIA fetches $10 billion, it is hardly enough to stem the massive bleeding of AIG, unless confidence in AIG is somehow miraculously restored, and well, I just don't see it happening.

When people buy insurance, they basically want to transfer their risks to the insurer in order to have peace of mind (for individuals) or manage business risks (for companies). Who would then want to buy insurance from an insurer which is facing an uncertain future? And so long as AIG cannot bring in new business premiums, it will continue to bleed profusely.

So, in the scenario that AIG finally goes under, its 51% stake in AIA would then be put up for auction again - that I presume should be on the minds of would-be buyers of AIA.

In the event that there are no buyers, AIG will try to float the various components of AIA in IPOs probably in Singapore, Hongkong and Japan. Will the small and institutional investors then dare to bite? Well, the saga continues ...