September 7, 2012 / 2:06 AM / 5 years ago

CORRECTED-UPDATE 6-AIG sells AIA shares at surprise premium, raises $2bln

(Corrects figure in second bullet point to $5.9 bln from $5.6
    * AIG sells AIA stake at HK$26.50 each, small premium
    * AIG stills owns 13.69 pct of AIA valued at $5.9 bln
    * AIG barred from selling further shares till Dec. 10
    * Analyst says size of sale and buyback disappointing

    By Elzio Barreto and Fiona Lau
    HONG KONG, Sept 7 (Reuters) - American International Group
Inc said it raised $2.02 billion through the sale of a
partial stake in its former Asian unit AIA Group Ltd,
placing the shares at a surprise premium although analaysts were
disappointed at the size of the sale.
    AIG will use the proceeds to buy back up to $5 billion of
its stock from the U.S. Treasury, helping to cut the U.S.
government's holding in AIG to below 50 percent for the first
time since a $182 billion bailout during the 2008 financial
    The U.S. Treasury is yet to announce plans for a further
stake sale in AIG, but a lockup on its next offering expired
early this month. The Treasury on Thursday declined to comment.
    Following the latest block sale, AIG will be left with 13.69
percent stake in AIA, valued at $5.9 billion. AIG is barred from
selling any further shares till Dec. 10.
    The widely expected sale of AIA shares was covered "multiple
times" a source familiar with the matter told Reuters. Block
deals are normally sold at a discount to attract investors, but
AIG sold the shares at HK$26.50 each, a 0.8 percent premium to
Thursday's close.
    AIA shares rose 5.3 percent to HK$27.65 on Friday as traders
who had been shorting the stock in anticipation of a weaker
price due to the sell-down were forced to buy back shares.
    AIG did not disclose the buyers, but said the shares were
purchased by institutional investors.
    The shares were sold at a premium due to demand from
institutions who would find it difficult to buy such a large
block of AIA shares in the open market without disturbing the
price, the source added.
    The source declined to be identified as the details of the
share placement was not confidential.
    Since its listing in 2010, AIA's shares have soared about 41
percent and become a top choice of fund managers looking to
benefit from growing wealth in Asia and booming demand for
insurance and other financial products.
    AIG shares fell 1.7 percent on Thursday, and one analyst
said the news was "meaningfully below both our and consensus
    AIG offloaded the AIA stake just two days after a lock-up
period on such a sale expired, but it is only about a quarter of
the $7.6 billion stake the U.S. insurer owned and could have
sold. AIG sold $6 billion worth of AIA shares in March.
    AIA, Asia's third-largest insurer, was spun out of its
parent company in October 2010, when AIG Chief Executive Robert
Benmosche oversaw the company's listing in Hong Kong after a
failed takeover offer from Prudential Plc. 
    AIA has built a sprawling and successful business across the
region, with an army of hundreds of thousands of agents. In July
it reported better-than-expected first-half results, with net
profit climbing 10 percent to $1.44 billion. 
    AIG said it sold 591.9 million shares, after offering them
in a range of HK$25.75 to HK$26.75 each, equivalent to a
discount of 2.1 percent and a premium of 1.7 percent to AIA's
Thursday close of HK$26.3 ($3.39), a term sheet of the deal
    The partial sale surprised some Hong Kong bankers and
investors, who expected the company to dispose of its entire
stake. It was also unusual for AIG to offer the shares at a
premium, when block trades normally come at a discount to
attract investors.
    "At the end of the day, this is small compared to AIG's
overall holding, and so it doesn't remove much of the overhang,"
said Kenneth Yue, an analyst at CCB International in Hong Kong.
    Benmosche said in May AIG would sell its shares in AIA in
September, once the lockup expired, but early in August he told
an analyst conference call he was looking for the right time and
the right price to sell the stake.
    The AIA transaction comes amid a slump in equity deals in
Asia-Pacific, where volumes so far in 2012 are down 33 percent
to $98.2 billion, according to Thomson Reuters data.
    Deal-starved bankers in Hong Kong jostled for a role in the
AIA sale, looking for a boost to their league table rankings. 
Deutsche Bank and Goldman Sachs were hired to
jointly manage the $2 billion block sale, the term sheet showed.
    Since a 2008 bailout that swelled to $182 billion, AIG has
worked to shed business units and pay back the U.S. government.
    The U.S. Treasury in August reduced its stake in AIG to 53
percent with the sale of nearly $6 billion worth of shares for
$30.50 per share.
    The shares fell 0.9 percent to $34.48 in late-afternoon
trading, well off their morning lows. The stock is nearly 50
percent higher for the year.
    In a statement, AIG said its board had authorized $5 billion
in buybacks, solely from the Treasury, which replaces all other
authorizations. The company noted there was no guarantee the
government would conduct an offering.
    "The sale of only a partial stake of AIA and only $5
(billion) of potential buybacks leaves us underwhelmed, and we
expect the stock will come under considerable pressure given the
much lower-than-expected buybacks from Treasury near-term,"
Sterne Agee analyst John Nadel said in a note to clients.
    At current prices, assuming AIG used the entire $5 billion,
the government's stake would be reduced to around 44 percent.
After an early 2011 recapitalization, the Treasury held 92
percent of the company, a position it has reduced with four
subsequent sales.
    AIG is funding only part of the buyback with the AIA
proceeds because of ample capital elsewhere to pay for the rest.
In early August the company had more than $11 billion in parent
company liquidity, which analysts expect to be largely devoted
to buying the government out of the stock.
($1 = 7.7571 Hong Kong dollars)

 (Additional reporting by Vikram Subhedar, Clare Baldwin, Kelvin
Soh and Denny Thomas in Hong Kong and Ben Berkowitz in Boston;
Editing by Michael Flaherty, Muralikumar Anantharaman, Sofina
Mirza-Reid, Leslie Adler and Richard Pullin)

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