American International Group Inc. (AIG) is planning to sell about half its stake in pan-Asian life insurer AIA Group Ltd. in the coming weeks, according to people familiar with the matter.
AIG can unload roughly $6 billion worth of AIA shares in a secondary offering in Hong Kong after a one-year lockup expires this week. An offering isn't likely to take place imminently, given recent market volatility, and the timing will depend on market conditions and the price of AIA's publicly traded shares, the people said.
AIG, which sold about two-thirds of AIA last October in an initial public offering, is aiming to sell its next batch of shares at more than the Asian insurer's IPO price of 19.68 Hong Kong dollars (US$2.53). AIA shares tumbled on news of the possible share sale and were down 0.8% in midday trading in Hong Kong while the market was up 1.7%. Any sale could be launched and completed within a day, given ample investor interest in AIA, according to people familiar with the likely deal.
An AIG spokesman declined to comment.
An AIA share sale in the coming weeks would help government-controlled AIG repay another chunk of its 2008 taxpayer-funded bailout and remove some volatility from AIG's quarterly financial results.
Over the past year, AIG has had to record changes in the market value of its remaining 33% AIA stake, which has resulted in big swings in AIG's bottom line. During the second quarter, a large increase in AIA's share price enabled AIG to report a $1.5 billion paper gain that boosted reported net income. A share-price decline in the third quarter will likely drag down AIG's reported earnings for that period. AIG reports third-quarter results Nov. 3.
While AIA has long been viewed as one of AIG's crown jewels because of the Asian franchise's growth prospects, some AIG officials feel the share-price volatility creates unnecessary noise for investors trying to understand AIG's performance, according to people familiar with the matter.
Selling more AIA shares may also help AIG show its shareholders and potential investors that the company is taking steps to shed more noncore assets and simplify its overall business, which some Wall Street analysts find to be more complex than other insurance companies'. AIG's main businesses include a global property- and casualty-insurance operation and a domestic seller of life insurance and retirement products. The company is also preparing to spin off an aircraft-leasing business in an IPO. According to regulatory filings, AIG can sell the rest of AIA starting in April 2012.
Earlier this month, AIA said the value of new business written—a measure of profitability—hit a record in its fiscal third quarter, rising 53% from a year ago, to $245 million, on the back of strong premium-income growth from countries such as China and Malaysia.
AIG, which is 77% owned by the U.S. government, is trying to find ways to improve its share price in order to completely exit from federal ownership over time. The Treasury Department is hoping to recoup $41.7 billion from selling its stake in AIG to investors and is separately positioned to be repaid an additional $9.3 billion when AIG sells stakes in AIA and its aircraft-leasing unit.