That elusive premium

AIA: Can’t AIA list in peace? The Asian life insurer's last attempt to offer its shares in Hong Kong was upended by a $36 billion bid from UK rival Prudential . That fizzled, but Chinese bidders are plotting a second assault, according to a report in the South China Morning Post. They must be gluttons for punishment.

Prudential’s takeover failed because it stretched too far. The UK insurer planned to double in size, offering 1.7 times AIA's embedded value - a premium to its own valuation. The theory is that a Chinese bidder, high on domestic liquidity, would have more chance of comfortably meeting the reserve price set by AIA’s parent, American International Group.

Details of the four mooted suitors are sketchy. One is a former TPG partner, another two are local tycoons. It is unclear who is backing them. China's banks are shoring up their capital ratios, so have little spare for deals of this size. Private equity funds in Asia have cash, but only an unwieldy consortium could feasibly muster $36 billion.

A Chinese insurer might fare better. The biggest, China Life, trades at twice its embedded value. Rival Ping An, meanwhile, has some $20 billion of "surplus" capital. But Beijing gets the final say on all big cross-border bids. It may not want Chinese firms to help the US government repay its bailout of AIG. Besides, memories of Ping An's investment in bailed-out Belgian rival Fortis are still raw.

The biggest hurdle, however, would be winning over regulators. In Thailand, AIA is the biggest buyer of government bonds. Politicians also worry about policyholders being hurt by botched merger integration. Malaysia, Vietnam and Thailand all expressed concerns about Pru's AIA bid, and would likely have the same doubts about other buyers.

AIG is likely to tread carefully. Pru's abortive bid embarrassed chief executive Robert Benmosche, who had persuaded a reluctant board to back it. But the prospect of launching a giant IPO in uncertain markets must be daunting. Even if bids for AIA don't pass muster, perhaps would-be suitors can be persuaded to support the IPO instead.