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AIG's ILFC draws sovereign funds: sources

NEW YORK (Reuters) - American International Group Inc has received bids for its aircraft leasing unit from sovereign wealth funds in Singapore, China and the Middle East, people familiar with the matter said on Monday.

An American International Group (AIG) office building is pictured in Tokyo December 24, 2008. REUTERS/Yuriko Nakao

Initial bidders for the unit, International Lease Finance Corp, include Singapore’s Temasek Holdings Pte Ltd, Dubai’s investment arm Istithmar World, Kuwait Investment Authority and China Investment Corp, the sources said.

Initial bidders for ILFC, which has been valued at up to $10 billion, also included private equity firms Carlyle Group, TPG Capital LP and Kohlberg Kravis Roberts & Co, the sources said.

Some other smaller private equity firms have also expressed interest, sources said.

The parties are in talks to form consortiums to bid for the unit as they grapple with funding the purchase, the sources said.

ILFC, one of the largest aircraft leasing companies in the world, owns about $55 billion worth of planes and is one of the biggest customers of both Boeing Co and Airbus, a unit of EADS.

Talks include the possibility of asking the U.S. government to help with long-term funding, a source said. Such financing from the government could help increase what the bidders are able to pay for the unit, the source said.

The timeline of the auction is not clear, but one source said the second round of bids could come in the third week of February.

AIG declined to comment. The bidders were not immediately available for comment.

‘PROMINENT ROLE’

ILFC is run by Steven Udvar-Hazy, considered by many as the “godfather” of the civil aviation market.

Udvar-Hazy, who founded ILFC in 1973 and sold it to AIG in 1990, is expected to stay on as the head of ILFC after the sale.

Udvar-Hazy had pegged ILFC’s value at $10 billion, but analysts have said it could be worth $8 billion. ILFC’s valuations could come in even lower as airlines struggle amid weak economies and a slowdown in growth in countries such as India and China.

But the unit could prove to be a good fit for countries such as Dubai and China, which have been looking to expand their commercial airline fleet.

“This is travel, which grows with GDP. (For) anyone wanting to take a major step and assume an extremely prominent role in a long-term growth market, this is the way to do it,” said Richard Aboulafia, an analyst at Teal Group.

“And obviously you can get around the huge concentration of cash needs and risk exposure by creating a team,” he said, referring to building a consortium.

ILFC relied on AIG’s blue-chip credit rating for access to cheap capital for buying planes, but was locked out of the debt market in September due to the insurer’s troubles.

AIG, once the world’s biggest insurer by market value, averted bankruptcy in September with an $85 billion federal bailout. The rescue later swelled to about $152 billion.

AIG has said it plans to sell everything except its U.S. property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations.

It has already agreed to sell some businesses, including its private banking unit to Abu Dhabi-based Aabar Investments PJSC, and HSB Group to German reinsurer Munich Re.

(For more M&A news and our DealZone blog, go to www.reuters.com/deals)

Editing by Jeffrey Benkoe

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