| NEW YORK
NEW YORK The Treasury plans to sell about one-fifth of insurer AIG through a stock offering in the first half of 2011, an important test of the government's ability to profitably exit one of its most controversial bailouts.
American International Group Inc and the Treasury would both sell stock in the offering, which could total $10 billion to $15 billion, sources familiar with the matter said. That would place it among the largest secondary share offerings in history.
The news sent AIG's shares down 3.7 percent to $42.32 as investors feared dilution, but the shares were still trading well above the approximately $30 level that taxpayers need to make a profit on the bailout.
The U.S. government has seen strong market appetite for stock in bailed-out companies in the past few months, allowing it to be more aggressive in winding down its unpopular rescue of companies like Citigroup and General Motors.
But the $182 billion AIG bailout was arguably more controversial and risky than either of those deals, as the headline number was higher and the company teetered on the brink of bankruptcy and a fire-sale breakup for nearly a year after the last-minute rescue.
Analysts said the proposed sale of 20 percent of the company was a cautious first step toward yanking the giant insurer off government life support.
"It doesn't strike me as all that aggressive given what we've seen in the recent sales of GM and Citi," Aite Group analyst Clark Troy said. "Given those two precedents, as well as the market's willingness to digest the AIG debt, I don't see 20 percent in the first half of 2011 being particularly aggressive at all."
HOPING FOR SPRING
An offering of AIG stock could come as early as March, but the discussions are preliminary, and the exact size and timing have not been decided, the sources said.
The offering would come after a previously announced recapitalization plan, which simplifies the bailout structure and accelerates the payback schedule, closes by the end of first quarter.
AIG said on Wednesday it had signed the master recapitalization deal, replacing the agreement in principle that was signed in September.
That plan will see the U.S. Treasury boost its AIG stake to 92.1 percent from 79.9 percent as AIG buys out the Federal Reserve and related entities with help from the Treasury and the proceeds of asset sales.
The share offering now under discussion could see that stake cut to the low-70 percent range in one go.
Under the terms of the recapitalization, filed with securities regulators Wednesday, AIG is allowed to raise at least $3 billion in an offering by August 15, 2011 and potentially another $4 billion on top of that subject to the Treasury's blessing.
The Treasury will have the right to set the terms and conditions of any share offering by AIG until Treasury's stake drops below 33 percent.
"We hope to be able to go to the market with a public offering of AIG this spring, but we have work to do to make that happen," AIG spokesman Mark Herr said. "We are working as diligently as we can to achieve this as quickly as possible, subject to market conditions.
"We remain committed to executing the steps and meeting all conditions in the recapitalization agreement as soon as possible," he said.
A Treasury spokesman said the agency was focused on finishing the restructuring deal.
"We are making good progress on the recapitalization plan but it is premature to speculate about next steps," he said.
AIG's shares have rallied this year, gaining 45 percent as the insurer under Chief Executive Robert Benmosche has charted a way out of government support by stabilizing core operations, tapping the debt markets and disposing of some assets.
Earlier this week, the Treasury sold its remaining shares in Citigroup Inc for $4.35 each, marking an exit from ownership in the bailed-out banking giant with a $12 billion gross profit for taxpayers.
General Motors Co's initial public offering last month became the world's biggest, raising $23.1 billion.
The AIG offering would be a secondary, not an IPO, but could still rank among the top 20 follow-on stock sales of all time if the amount is boosted to $15 billion.
(Reporting by Paritosh Bansal and Ben Berkowitz; Additional reporting by David Lawder in Washington; editing by Gerald E. McCormick, Tim Dobbyn, Matthew Lewis and Bernard Orr)