By Jessica Toonkel and Ben Berkowitz
May 31 A Chinese group's purchase of ILFC, one
of the world's largest airplane leasing companies, could
collapse after insurer American International Group Inc
said on Friday it did not receive a scheduled deposit payment.
Under terms of the agreement, the missed payment gives AIG
the right to cancel the sale, though such a decision was not
expected to be imminent. It is unclear from the agreement
whether AIG would be entitled to some sort of break-up fee, and
if so, how much.
AIG declined to comment, while a spokesman for the
consortium was not immediately available to comment.
Missing a payment on a signed deal is highly unusual.
Bankers and attorneys said it underscored the difficulties in
dealing with a consortium of investors who may have differing
opinions about how deals should get done and how much each party
pays. The Chinese government's involvement complicates matters
"Consortiums in general pose concerns," said Morton Pierce,
a partner in the mergers and acquisitions department at law firm
White & Case. "A foreign consortium adds another element of
AIG said last December it would sell up to 90 percent of
ILFC for up to $4.8 billion. Two weeks ago, the sides agreed to
extend the deadline for the deal's closing by a month to
The Chinese consortium was to include New China Trust, which
is one-fifth owned by Barclays Plc ; China Aviation
Industrial Fund; and P3 Investments Ltd. An arm of Industrial
and Commercial Bank of China, China's biggest bank,
was meant to join the group once the deal had regulatory
But executives at aircraft leasing companies have speculated
since the deal was announced last December that it might not
close, according to one person who has spoken to a number of the
executives over the past few weeks.
"This appeared to be a group of investors who were not
household names for the most part and who did not have
experience with Western investing," said the person, who wished
to remain anonymous because he is not permitted to speak to the
But another source said the deal was not expected to fall
apart, and could still go through. Deals with Chinese buyers
were often more complicated due to the government's role in all
business transactions, this person added.
"Things take longer and it is not always clear who is making
decisions," the person said. "The approval process is not as
transparent as it is in the U.S."
Even with the difficulties in getting approval at home,
Chinese companies have become more comfortable doing deals in
the United States, despite past stumbles.
With over $10.5 billion in deals in the United States so
far, 2013 is on pace to be the biggest year for M&A by Chinese
companies, according to Thomson Reuters data.
There were $11.5 billion in deals by Chinese companies in
the United States in 2012 - a significantly higher figure than
in any year other than 2007.
ILFC was the last key asset that AIG was attempting to
dispose of following its government-backed restructuring. AIG
filed to take the business public in 2011 before ultimately
agreeing on the direct sale last year.
"We are disappointed by this news, as the sale was
significant to AIG's restructuring. Still, we think ILFC is an
attractive franchise and note that AIG may have other options,
including an initial public offering," S&P Capital IQ analyst
Cathy Seifert said in a note to clients.
With nearly 1,000 owned or managed planes, ILFC is one of
the world's largest players in the market for buying aircraft
and leasing them to airlines.
But ILFC has been hurt after recording heavy charges in
recent years to write down the value of older planes in its
fleet. The sale price was about half of what AIG had once
insisted the business should be worth.
AIG shares fell 2.4 percent to $45.12 in afternoon trading.
The stock has been on a tear, rising 31 percent this year and
roughly doubling over the last 18 months.