American International Group's Manhattan headquarters may be far away, but the stricken insurer is likely to float its Asian life insurance division, American International Assurance, in Hong Kong during the first quarter next year. The initial public offering, expected to fetch up to US$10 billion, would be Hong Kong's largest since April 2007. AIG could use the money. It has been propped up by US$180 billion in US taxpayer-funded bailouts, and is now eyeing Hong Kong investors' enthusiasm for new listings as a partial solution to repay those government loans. AIG is likely to pick Hong Kong, observers say, not just because AIA is based in Asia. Local investors love an initial share sale. In 1997, thousands of retail punters queued patiently for days outside bank branches to get their hands on Beijing Enterprises Holdings' initial public offering stock, placing orders worth 369 times the value of shares available to them. The retail portion of Bank of Communications' 2005 share sale was 150 times oversubscribed. AIA has assets of US$60 billion. Bankers vying to win coveted roles underwriting the offer value the business at up to US$40 billion. They say AIG could raise between US$5 billion and US$10 billion in the flotation by selling only part of the company. Financiers predict frenzied interest. Initial share offers tend to do well in early trading in Hong Kong, with retail punters and hedge funds piling in to turn quick profits. Since 2004, shares in newly floated companies in Hong Kong raced up an average 9.5 per cent on their first day of trading, according to Dealogic. Investors also love big names they know. AIG was founded in Shanghai 90 years ago, so the business has a long history in Greater China. 'AIA has a real household name appeal,' said one banker who is pitching for a role on the flotation. Financial details on the business are scant. AIG does not provide performance data for AIA. Reportedly, the Asian business made a US$2 billion operating profit in 2007. But insurers need healthy financial markets to make money. They invest policyholders' cash in bonds, shares and properties. The credit crunch could have blown a wide hole in AIA's earnings. Manulife posted a net income of just C$177 million (HK$1.17 billion) in its Asian division last year, compared with C$831 million in 2007. Analysts say AIA has decent long-term future, though. 'Generally, the prospects are very good,' said Standard & Poor's life insurance analyst Paul Clarkson. He estimated the value of life insurance premiums on the mainland at just 2 per cent of gross domestic product, while in India the figure is 4 per cent. There is a slim chance, of course, this offer will not happen. AIG hatched the plan after calling off an earlier attempt to sell a minority stake in AIA in March. Prospective buyers including Manulife, Prudential, Bank of China and China Life Insurance were interested. But they made low-ball offers for the 49 per cent stake, which AIG baulked at. 'I get the feeling the stake sale is still a possibility,' said one financier who had been involved in that deal. If AIG takes the listing route, boss Edward Liddy is said to be leaning strongly towards Hong Kong as the sole venue, but this may not happen. Documents AIG sent to bankers inviting them to pitch for work on the transaction on Monday only talk about a fund-raising in Asia. 'The document definitely talks about Asia as the venue, not just Hong Kong,' one banker who has read the document said. No financiers would be named talking about the deal for fear of losing favour with AIG. Two bankers said that AIG may consider splitting up the behemoth AIA geographically and listing the company in a few of its 13 Asian markets. Multiple share offers could happen in Hong Kong, Singapore and Australia, they said. But bankers pitching for the deal were unanimous in saying they would recommend Hong Kong only. 'Hong Kong is a massive international market, while Singapore and Sydney are not,' a banker argued. He added the local stock exchange was definitely big enough to handle such a huge flotation. Mainland lender Industrial and Commercial Bank of China raised US$19 billion in its 2006 Hong Kong listing. 'The AIG executives will understand just what a great venue Hong Kong is for hosting [flotations],' said one banker who believes his firm has a big chance of winning a leading role in the AIA share sale. 'They will see the pictures of local investors queueing around the block outside banks to get their hands on IPO shares. They will know it's right to bring the listing here.' An AIA spokesman refused to comment beyond what the company had published in press releases.