* AIA IPO poised to be world's third-biggest IPO
* Upsize option exercised, thanks to strong demand
(Adds analyst quote, valuation, data)
By Denny Thomas and Kennix Chim
HONG KONG, Oct 22 (Reuters) - AIA, the Asian life insurance arm of American International Group Inc. <AIG.N>, raised $17.9 billion by pricing its Hong Kong IPO at the top of an indicated range, sources said, due to heavy demand for one of Asia's best known industry brands.
The pricing of the IPO, set to be the world's third biggest, puts an end to AIG's long-running effort to sell AIA, a process that began roughly two years ago. British insurer Prudential plc <PRU.L> tried and failed to purchase AIA earlier this year.
AIG will use the IPO proceeds to pay back part of the bail out it received from the U.S. government during the 2008 financial crisis--a rescue package that ballooned to a whopping $182.3 billion.
The IPO will value AIA at $30.5 billion at the top end and AIG will continue to hold 41.6 percent.
AIG's stake will drop to 33 percent if it exercises the green-shoe option in full. AIA's offering is on course to be Hong Kong's largest ever, and the third largest ever globally.
AIA sold 5.86 billion secondary shares at HK$19.68 each compared with a range of HK$18.38 to HK$19.68, sources with direct knowledge of the matter told Reuters.
The sources declined to be identified as AIG was yet to make the decision public. An AIA spokeswoman was not available for an immediate comment.
AIA also exercised the upsize option to sell an additional 1.17 billion secondary shares, due to strong demand from investors.
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For BREAKINGVIEWS on AIA valuation [ID:nLDE6930KI]
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AIA's unique position as the only listed life insurer with a wide foot print in the rapidly growing Asia-Pacific region is a big draw for investors, fund managers said.
It operates in 15 markets in Asia. Unlike many other foreign insurers, AIA has 100 percent ownership of its entities in China, Indonesia, Malaysia, Thailand and Vietnam. AIA has more than 300,000 agents in Asia.
"This is a cost effective way for IPO investors to ride China's growth," said Francis Gaskins, president of IPOdesktop.com in Marina del Rey, California.
Gaskins said the upsizing of the deal could temper its first day performance, but said the debut could still see a healthy jump because its valuation was below that of its peers.
AIA's trading debut is set for Oct. 29, under the symbol "1299" <1299.HK>.
AIA will be valued at 1.32 times price to embedded value, far lower than some of the Chinese insurers such as China Life <2628.HK> and Ping An Insurance Co <2318.HK>.
Embedded value is a measure commonly used to gauge the value of insurance companies and includes the present value of future profit from long-term insurance contracts.
By comparison, China Life Insurance <2628.HK> <601628.SS> <LFC.N>, Chinas No.1 life insurer traded at 2.38 times forecast 2010 embedded value, while No. 2 life insurer Ping An Insurance <2318.HK> <601318.SS> traded at 2.6 times forecast 2010 embedded value, according to a BofA Merrill Lynch research report.
Others Asian insurers, include Japan's Dai-ichi Mutual Life Insurance <8750.JP> and Korea's Samsung Life Insurance <032830.KS> trade at 0.37 times and 1.11 times 2010 forecast 2010 embedded value, respectively.
A Reuters poll released last week forecast AIG to sell shares at HK$19.14 each.
Citigroup Inc. <C.N>, Deutsche Bank AG <DBKGn.DE>, Goldman Sachs Group Inc <GS.N> and Morgan Stanley <MS.N> are joint global coordinators for the IPO.
Other banks involved in the offering include Bank of America Merrill Lynch <BAC.N>, Barclays, Credit Suisse <CSGN.VX>, JP Morgan <JPM.N>, UBS <UBSN.VX>, ICBC International and CIMB. (Additional reporting by Phil Wahba in NEW YORK; Editing by Michael Flaherty and Dhara Ranasinghe) ((denny.thomas@reuters.com; +852 28436 358; Reuters Messaging: denny.thomas.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))
