Posted on 05 Mar 2012
American International Group Inc. (AIG) kicked off a $6 billion sale of shares in Asian life insurer AIA Group Ltd. on Monday morning in Hong Kong, moving forward with plans to repay another chunk of its 2008 U.S. bailout.
AIG said the shares will be placed with institutional investors and expects them to be priced by Tuesday. The 1.7 billion shares up for sale represent around 14% of AIA, less than half the 32.9% stake AIG holds, according to a term sheet.
Proceeds from this week's sale have been earmarked to repay the U.S. government, which rescued AIG from near collapse during the financial crisis with a record $182.3 billion bailout that has been partially repaid. The Treasury Department still has to recoup about $50 billion in taxpayer funds, and about $8.4 billion of that amount will be repaid when AIG sells the AIA shares and other assets, including its airplane-leasing subsidiary. The rest of the money—roughly $42 billion—is supposed to come from the government's sale of its 77% stake in AIG.
New York-based AIG used to own all of AIA and sold two-thirds of the company in a Hong Kong initial public offering in late 2010. A one-year lockup on further sales expired at the end of October last year, and AIG had been waiting for favorable market conditions to sell more of AIA. Goldman Sachs Group Inc., Deutsche Bank AG, Citigroup Inc., Morgan Stanley , Barclays Capital, Credit Suisse , Bank of America Merrill Lynch, J.P. Morgan Chase & Co., Macquarie Group Ltd. and UBS AG are handling the sale for AIG.
AIA shares have gained 48% since their IPO and are up 20% this year. The term sheet circulated Monday in Hong Kong said AIG plans to sell the shares at HK$27.15 to HK$27.50 each (US$3.50 to US$3.54), about a 5.8% to 7% discount to AIA's closing price last Friday. After this week's sale,
AIG will be restricted from selling more shares for an additional six months.
AIG Chief Executive Robert Benmosche said in an earlier interview that one of the insurer's priorities this year is moving forward with asset sales to repay taxpayers and taking other steps to boost AIG's value in the eyes of investors. The AIA share sale will also remove some volatility from AIG's quarterly results, which have seen large swings over the past year due to changes in the market value of its one-third stake in AIA.
AIG's own shares, meanwhile, have also risen since the start of 2012 and are above the minimum level where Treasury can theoretically realize a profit for taxpayers by selling its stake. The government has yet to announce plans to sell more shares, but its next sale is expected in coming months. AIG shares closed at $29.80 Friday.
"The Asian life insurer's new business value growth reached its peak last year. Besides, AIG may sell its remaining stake to raise proceeds to buy back its own shares from the US Treasury. Valuation is high and we expect the stock [of AIA] to remain under pressure in the near term," said CLSA in a research report Monday.
Shares of AIA were suspended from trading Monday pending an announcement about AIG's share placement, the insurance company said. It didn't give any details on pricing or the size of the sale, however.
AIG's total stake in AIA is valued at US$14.9 billion based on Friday's closing price. After the placement, AIG, which currently holds 32.9% of AIA, will hold around an 18.9% stake, valued at US$8.5 billion.