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As American International Group (AIG.N) becomes free next week to sell a $7.6 billion stake in former unit AIA (1299.HK), deal-starved bankers in Hong Kong are jostling for a role in what may be Asia-Pacific's biggest stock market event of the year.

A lock-up agreement preventing the U.S. insurer from selling the stake expires on September 4. If AIG does decide to sell the entire 18.6 percent stake, the deal would be Asia's biggest-ever block offering, ahead of Vodafone plc's (VOD.L) $6.6 billion sale in China Mobile (0941.HK) two years ago.

A role in the AIA Group Ltd selldown could offer a major financial boost to the banks, in the form of a substantial fee for a day's work, and a significant increase to their deal rankings heading into the final quarter of what has been a dismal year.

AIG CEO Robert Benmosche has hinted previously that the stake will be sold after the lockup date expires, though he has not specified how much or when. An AIG spokesman in New York declined to comment for this story.

AIG could decide not to sell anything or it could sell off a small chunk. But sources with knowledge of the matter say the investment banking industry is preparing for the U.S. insurer to unload the entire lot.

"Everyone is running around to be a part of it. Most people expect AIG to clean out its position," one financial institutions group banker said.

Bailed-out AIG spun off two-thirds of AIA in 2010, raising $20.5 billion in the world's third-largest IPO ever at the time. AIG agreed to certain restrictions on its remaining stake and sold a chunk in March, raising $6 billion.

MINOR TIFF

An AIA transaction would come amid a slump in equity deals in Asia- Pacific, where volumes so far in 2012 are down 33 percent to $98.2 billion, according to Thomson Reuters data. UBS (UBSN.VX) is the region's top stock underwriter year-to-date, followed by Goldman Sachs (GS.N) and Citigroup (C.N).

Revenues across Asia at investment banks, which in a year can hit several hundred million dollars, have been dampened, as stock offerings command the highest fees. An IPO typically offers 3 percent of the proceeds. A block deal can offer a similar payout, but fees on such a deal are rarely disclosed.

Assuming even a 1 percent fee, a dozen banks could split around $80 million, with the larger payouts going to the lead bookrunners.

But a block sale is riskier for banks, as it requires them to buy the shares first before distributing them. When demand flops for a block sale, banks are forced to sit on the shares, taking an immediate paper loss.

Bankers had pushed hard for the March AIA mandate, in a deal so competitive that a spat occurred when the time came to assign league table credit.

Deutsche Bank (DBKGn.DE) and Goldman got the lead roles on the deal, specifying on term sheets that they were the "active" coordinators and bookrunners. That led other banks to complain that the term sheets implied the rest were "passive", and a major push ensued to revise the credits.

In the end, all 11 banks involved got league table recognition, with Deutsche and Goldman taking a greater portion of the fees.

SHARES RISE

AIA's shares are up 9.5 percent so far in 2012 and have soared about 35 percent since the IPO. Fund managers see AIA as a top choice to benefit from Asia's growing wealth and booming demand for insurance and other financial products. The Hong Kong financial services sub-index.HSNF is up 4.7 percent in 2012.

Despite this year's gains, AIA is not expensive compared to its peers. It trades at 16.3 times its 12-month forward earnings, according to Thomson Reuters data, while Asia-Pacific insurers on average trade at forward price-to-earnings ratio of 15.3.

AIA shares have remained resilient despite the stock overhang issue and just a week before the March selldown, the stock came within striking distance of its all-time high. AIG sold the AIA shares at HK$27.15 in the March selldown and on Friday the stock traded flat at HK$26.55.

"The previous placement was done in one day and not that well anticipated by the market. Even then the stock digested the placement quite well. While this one is a little larger, it is widely anticipated and the market should not have too much trouble digesting it," said Credit Suisse analyst Arjan van Veen.

Nevertheless, taking no chances, the underwriters are expected to line up a large investor or strategic buyer to take up a big chunk of the deal.

This article is copyrighted by Reuters