AIA announces SGD 10Y subordinated bonds at IPG of 4.00%

AIA Group Ltd plans to issue new SGD 10Y subordinated bonds at an initial price guidance of 4.00%. Here is our take on this new issuance.

Colin Low
Colin Low04 Jun 2025 938 Views
AIA announces SGD 10Y subordinated bonds at IPG of 4.00%
AIA Group Ltd (“AIA”) plans to issue new SGD 10Y subordinated bonds at an initial price guidance of 4.00%. The bonds will come with an optional call option 3 months before maturity subject to several conditions. The issuer is rated ‘A1’ (stable) by Moody’s, ‘A+’ (Positive) by S&P, and ‘AA-’ (Stable) by Fitch. This new issue is expected to be rated A2 by Moody’s. Proceeds from this new issuance will be used for general corporate purposes.

AIA is one of the largest life insurers in Asia, providing insurance-related products and services as well as employee benefits, credit life and pension services. The Group has operations in 18 markets across Asia-Pacific and total assets of USD 305 billion as of 31 December 2024. AIA mainly reports in the following operating segments (the geographical markets which it operates): Mainland China, Hong Kong, Thailand, Singapore, Malaysia, and Other Markets.

For first quarter ended 31 March 2025 (“1Q25”), AIA reported a 13% YoY growth in value of new business (“VONB”) to USD 1.5 billion (1Q24: USD 1.3 billion), helped by growth in its Agency channel and partnership distribution. AIA Hong Kong, the Group’s largest segment, recorded a 16% YoY growth in VONB driven by growth across domestic and Mainland Chinese visitor customers. The Group’s next largest segment, AIA China, continue to be weighed down by weaker domestic conditions. The segment recorded a -7% YoY decline in VONB after adjustments reflecting Chinese government bond yields and a reduction in long-term investment return assumptions.

AIA also recorded annualised new premiums at USD 2.6 billion in 1Q25, a steady 7% YoY growth (1Q24: USD 2.4 billion). As such, reported VONB margin – a measurement for profitability margin - was 57.5% in 1Q25, up 3.0 pps over the past 12 months (1Q24: 54.2%), reflecting a positive shift in the overall product mix. 

The Group also recorded a 16% YoY increase in new business contractual service margin (“NB CSM”) – a measurement of unearned profit from the new business. A higher growth rate for NB CSM (16% YoY) than VONB (13% YoY) suggests higher likelihood of AIA in meeting its operating profit after tax (OPAT) per share CAGR target of 9 – 11% from 2023 to 2026.

AIA fixed income investment portfolio remains prudent as of 31 March 2025, in our view. The portfolio’s average credit rating remained stable at ‘A’, with over 1,700 corporate bond issuers and an average holding size of USD 39 million. The high-quality nature of AIA’s bond portfolio was also reflected from 1) a low, 2% of portfolio rated being below investment grade or un-rated, similar to the prior quarter, 2) only 0.02% of the portfolio was downgraded below investment grade in 1Q25, and 3) a USD 2 million decreased in the expected credit loss provision to USD 463 million (0.5% of the portfolio). 

Over 80% of AIA China’s investment portfolio was held in fixed income investments as of 31 March 2025. Amongst the holdings, over 90% was in government/ government agency bonds. Management highlighted that the average international rating of this bond portfolio remained stable at ‘A+’ compared to 31 December 2024. 

AIA continues to report strong capital position as of 31 Dec 2024 (FY24 – most updated reporting for capital and liquidity ratios). The Group’s Tier 1 group capital was reported to be USD 49.3 billion (FY23: USD 46.5 billion), while its total capital (‘eligible group capital resources’) was reported at about USD 77.7 billion (FY23: 73.2 billion). Overall, capital coverage ratios remain healthy and above minimum requirements. The Group’s Tier 1 group capital coverage ratio was 349% (or ~3.5x over the Group minimum capital requirement) while the Group LCSM coverage ratio (Local Capital Summation method) was 257% (regulatory requirement of 100%).
 
The Group reported a leverage ratio of 13.1% as of 31 Dec 2024 (FY23: 12.1%) as borrowings remain a small, manageable part of the total leverage (sum of equity, borrowings, and CSM). AIA has a well distributed debt maturity profile, with little near-term debt maturity (2025: USD 155 million, 2026: none). Over the next 10 years, most maturities are concentrated within 2027 – 2030 (total: USD 4.6 billion) and 2033 - 2035 (total: USD 2.9 billion).

Table 1: Comparison against peers

Bond Name

Years to Call / Maturity

Ask Price

Yield to Call / Maturity (%)

AIA 11Jun2035 Corp (SGD)*

10.00

100.00*

4.00%*

GESP 3.928% 17Apr2039 Corp (SGD)

8.87 / 13.88

105.30

3.24% / 3.05%

MFCCN 4.275% 19Jun2034 Corp (SGD)

4.04 / 9.05

104.50

3.08% / 3.13%

PRUFIN 3.800% 22May2035 Corp (SGD)

9.72 / 9.97

102.37

3.50% / 3.51%

Source: Bloomberg, Bondsupermart, iFAST compilations. Data as of 4 June 2025.
*Not yet issued, yield is based on initial price guidance.


At the IPG of 4.00%, AIA’s new subordinated notes appear attractive when compared to peer issuances - Manulife Financial’s 2034 subordinated notes, Great Eastern’s 2039 subordinated notes, and Prudential’s senior subordinated notes (Table 1). We expect the final price guidance (“FPG”) to adjust downwards from the IPG but likely still offer a yield pickup over its peers. Additionally, AIA’s new issue also provides a decent yield pickup against the safe, 10 year Singapore Treasury notes (2.3% – 2.4%) which have been seeing a decline in yields lately. 

In our view, AIA has a healthy credit profile as its issuer rating suggests. We think this bond is suitable for investors who are risk adverse and/or for those looking to lock in rates for a longer period.

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