NEW YORK/BANGALORE AIG's aircraft leasing unit, International Lease Finance Corp, filed for an initial public offering on Friday despite deep uncertainty in equity markets that could delay an offering until next year.
ILFC Holdings Inc, as the company will be called, is the world No. 1 in the business of buying planes and leasing them to airlines. It controls more than 1,000 aircraft and is one of the most important customers of both Boeing Co (BA.N) and EADS's EAD.PA Airbus unit.
American International Group Inc (AIG.N) bought the business in 1990 and has made no secret of its desire to sell it. Chief Executive Bob Benmosche said last month that the business was worth at least $8 billion and that no one could afford to buy it.
AIG plans to sell more than 20 percent of its stake in the company through the IPO and dispose of at least 80 percent of its interest within three years of the offering.
ILFC earned $143.1 million on revenue of $2.29 billion in the six months ended June 30. Analysts said that although ILFC was a good opportunity for investors, the AIG connection might dampen some interest.
"It is a wonderful opportunity for buyers except those that are very sour with anything that has to do with AIG," said David Menlow, president of IPOfinancial.com. "It'll have an effect of giving more power to the buyers. It will be their chance to take a pound of flesh out of AIG in retaliation."
AIG itself encountered a similar issue in May when the company and the U.S. Treasury conducted a share offering designed to reduce the government's stake in AIG. Though AIG management told investors the stock's true value was in the mid-$30s range, the offering was ultimately done at $29, just pennies above the government's break-even point.
AIG shares fell 3.5 percent to $23.93 in early trading Friday, a deeper decline than the broadly lower markets. At that price, AIG is almost $6 below the government's break-even point.
TIMING IN DOUBT
The ILFC filing with the U.S. Securities and Exchange Commission lists an offering size of $100 million, though that is typically a placeholder. Sources said in July the offering could be as large as $1.5 billion and value the company at $8 billion to $10 billion.
But the U.S. IPO market has struggled as concerns about Europe's debt crisis and a weak economic recovery in the United States have made markets extremely volatile. This has made it difficult to price IPOs, and a number of deals were withdrawn last month ahead of the traditional U.S. IPO market August holiday.
Bankers and fund managers should return next week, but there is skepticism about how quickly the IPO market will come back.
"This (ILFC) deal will need to be very attractively priced to get done," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster. "If it doesn't come at an attractive price, they might not be able to bring it out, at least not in the United States."
The IPO could happen this year, potentially in November, but that is unlikely, Schuster said.
ILFC is most likely just filing to start the IPO process, which can stretch out for months, he said.
AIG is expected to use the IPO proceeds to pay off some of the government's preferred interests in an entity that controls AIG's one-third stake in Asian insurer AIA (1299.HK).
If the company is able to pay off those preferred interests, it will be able to keep its stake in AIA, which it took public in Asia last year. In the second quarter, AIG's interest in AIA accounted for almost all of AIG's net profit.
AIG has been offloading assets after its September 2008 government bailout, which at one point totaled $182.3 billion.
Earlier this year, ILFC rival Air Lease Corp (AL.N) raised $802.5 million in an IPO. Its founder, Steven Udvar-Hazy, who also founded ILFC before selling it to AIG, has expressed interest in buying ILFC. AIG sources have cast doubt on his ability to do so.
Los Angeles-based ILFC said Citigroup, JPMorgan and Morgan Stanley would underwrite the IPO.
Citi and JPMorgan were expected, but sources said in July that Bank of America, not Morgan Stanley, would be the third bank. In the interim, though, AIG sued Bank of America for $10 billion over bad mortgage securities.
The IPO filing did not reveal how ILFC shares would be offered or their expected price. The company intends to list its common stock on the NYSE under the symbol "ILFC."