American International Group Inc has scrapped plans to sell a strategic stake in its Asian life insurance business, AIA, ahead of its initial public offering, a source familiar with the process said on Friday.

About four consortiums consisting of Chinese investors had approached AIG with offers to buy a stake in American International Assurance, sources previously told Reuters.

AIG declined to comment.

AIA's IPO is expected to raise about $15 billion (9.7 billion pounds) through a Hong Kong listing by late October or early November, in what could be the biggest IPO on the Hong Kong stock exchange. The tight schedule for the IPO left little room for strategic investors to conduct due diligence leading to the process being scrapped, the source said.

Reuters reported on Wednesday that AIG was set to decide on pre-IPO stakes by early next week, although expectations were running low for a deal to be struck.

The focus will now shift to discussions over selling cornerstone stakes in AIA. The success of AIA's IPO will hinge largely on demand from cornerstone investors, as was seen in the record-breaking IPO of Agricultural Bank of China Ltd last month.

Several sovereign wealth funds from Asia and the Middle East, and Hong Kong business tycoons have expressed interest in cornerstone stakes in AIA, sources have previously told Reuters.

While, strategic investors are allotted shares at a discount, cornerstone investors agree to buy into an IPO at the price decided by the institutional book-building process. Cornerstone investors are normally barred from selling their shares for 6-12 months, while strategic investors have much longer lock-in periods.

The presence of strategic investors build confidence in the offer before it goes to institutional investors and also helps in setting a valuation benchmark.

AIG is set to name Citigroup Inc, Deutsche Bank AG, Goldman Sachs Group Inc and Morgan Stanley as joint global coordinators for the IPO, sources have previously told Reuters.

It has also kept Bank of America Corp, Credit Suisse Group AG, UBS AG, CCB International and ICBC International Holdings as bookrunners on the deal, a source familiar with the matter said on Wednesday.

The addition of these banks means AIG is sticking with the original group of underwriters for AIA, although with Citigroup and Goldman getting more responsibility, some roles have changed.

AIG, which is nearly 80 percent-owned by the U.S. government, is divesting AIA and other assets to repay taxpayers after receiving a $182.3 billion aid package at the height of the financial crisis.

(Reporting by Denny Thomas; Editing by Chris Lewis)

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