AIG to sell $6 billion in AIA stock to repay bailout

HONG KONG Mon Mar 5, 2012 3:19pm EST

The logo of the AIA tower is seen at its entrance in Hong Kong July 13, 2010.   REUTERS/Tyrone Siu

The logo of the AIA tower is seen at its entrance in Hong Kong July 13, 2010.

Credit: Reuters/Tyrone Siu

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HONG KONG (Reuters) - American International Group is selling part of its stake in AIA Group to raise about $6 billion, which will help the insurer repay part of its government bailout.

Markets reacted favorably, with AIG shares rising to their highest levels in 10 months on the news.

AIG is looking to sell about 1.7 billion AIA shares at HK$27.15 to HK$27.50 each, according to a term sheet Reuters saw on Monday. That would be a discount of up to 7 percent to Friday's closing price.

The shares will go to institutional investors. AIG expects to use the net proceeds to reduce the balance of the U.S. Treasury Department's preferred interest in a special-purpose vehicle that holds the AIA shares. As of last month, those preferred interests were worth about $8.4 billion.

The Treasury also owns 77 percent of AIG's common stock following a massive $182 billion bailout in the wake of the 2008 global financial crisis.

At Friday's close, AIG's one-third stake in AIA was worth $14.9 billion. Following the share sale, the U.S. company will hold about 19 percent of AIA.

Institutions are expected to buy into the offering because of AIA's strong performance since the company's $20.5 billion Hong Kong IPO in 2010 -- Asia's third-largest public listing. But a big run-up in the stock price may have some feeling that the current offer is expensive.

With such a large sale and AIA's free float increasing, though, the company's weighting on benchmark indexes should rise, making the stock a target for fund managers tracking the Hang Seng and the Hang Seng Finance Index.

"The issue of getting the deal through shouldn't be a problem, plus there should be some index buying," said the head of a large U.S.-based asset manager in Hong Kong who was not authorized to speak publicly on the AIA sale.

Kenneth Yue, a Hong Kong-based analyst at CCB International Securities, said the sale looked well timed.

"If you look at AIA's new business growth last year, it went up 40 percent," he said. "I believe they've gone to the peak already -- it would be very challenging for them to increase their new business value going forward by 40 percent every year."

Pricing of the AIA share sale will occur no later than Tuesday, AIG said.

BANK CREDIT

Deutsche Bank and Goldman Sachs are the "active" joint global coordinators, according to two sources with direct knowledge of the process. Both requested anonymity because they are not authorized to speak publicly on the matter.

Deutsche and Goldman were among the four banks that led AIA's IPO, along with Citigroup and Morgan Stanley. The sources said Citi and Morgan Stanley were taking "passive" roles in the current AIG sell-down.

The distinction is important, not just for the fees that such a large offering brings, but also in the league table credit that can help a bank's external marketing. For the AIA sell-down, the banks will get equal league table credit, but Deutsche and Goldman will take home the fatter fees, according to one of the sources.

The deal should be "well distributed" among different investors, instead of large chunks going to just a handful, the source noted.

Shares of AIA, headed by former Prudential Plc executive Mark Tucker, have risen 47 percent since early October and touched a seven-month high last week. The stock closed at HK$29.20 on Friday.

AIG has been on a similar run, gaining 46 percent over the same period. Its shares rose 1.2 percent to $30.16 in afternoon trading, their highest level since last May. Fitch Ratings said on Tuesday that the sale would improve AIG's focus on its core operations and would help its credit rating profile.

CROWN JEWEL

AIA was founded in Shanghai in 1919 by U.S. entrepreneur C.V. Starr. Twenty years later, Starr temporarily relocated to the United States to avoid political instability in Asia and, following World War II, decided to run his U.S. businesses from New York. They came to be known as AIG, whose shares began trading in New York in 1984.

Now Asia's third-largest insurer, AIA has built a sprawling and successful business across the region, with an army of hundreds of thousands of agents.

AIG was forced to spin off AIA, widely considered its crown jewel, and other assets following the bailout by the U.S. government.

AIG Chief Executive Robert Benmosche has said little about his plans for the AIA stake. As recently as February 24, AIG said it had not decided what to do with the stake and had earlier hinted it may even increase its holding.

But the company appears to have opted instead to start paying the government back and focus on other parts of its business.

(Additional reporting by Fiona Lau, Elzio Barreto and Ben Berkowitz; Writing by Michael Flaherty; Editing by Ed Davies, Ian Geoghegan, Lisa Von Ahn and Mark Porter)

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Comments (7)
Harry079 wrote:
From Nasdaq.com.

“Largest shareholder American International Group Inc. (AIG) is seeking to sell “a significant proportion” of its shares in the Hong Kong-listed insurance company and is expected to use the proceeds to reduce its debt to the U.S. Department of the Treasury, AIA Group said in a statement.

U.S.-based AIG, which currently holds 32.89% of AIA Group, expects the pricing of the placement no later than Tuesday, adding that trading in AIA Group’s shares will resume no later than Wednesday.”

Yea I’ll be sure to check the share price on Thursday after the Treasury gets out of the Asian Life Insurance business.

Mar 04, 2012 8:10pm EST  --  Report as abuse
mmguniverse wrote:
The interest payable immediately is USD 6 billion from proceeds of sale of AIA shares and balance interest still left in SPV is 8.4 billion. When will AIG start paying the Principal? Since interest keeps on accumulating, it may not be possible for AIG to repay the bailout amount for a very long time unless some miracle happens.

Mar 05, 2012 1:06am EST  --  Report as abuse
AZWarrior wrote:
I think we all know he game being played here. Servicing interest without reducing principal is no great accomplishment.

Bottom line: All the “too big to fail” bailed out companies are still as large, and many even larger than before the crisis. The cause of the crisis has not only not been fixed, but the system is even more dangerous than it was.

Am I the only one with basic math skills in the US? Is there no intelligence on this planet after all?

Mar 05, 2012 4:14am EST  --  Report as abuse
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