AIG is seeking to raise around $2 billion by selling off another chunk of its stake in Asian life insurer Ltd.
AIG's board also approved a new $5 billion stock-buyback program that will allow the company to repurchase more of its own shares from the U.S. Treasury, an amount that would likely reduce the government's stake in the once-struggling insurance company below 50%.
The sale of the AIA shares is the third for AIG, which once owned the entire Hong Kong-listed company but was forced to sell much of its stake beginning in 2010 to help repay the bailout, which totalled more than $180 billion.
AIG is looking to sell 600 million AIA shares for 25.75 Hong Kong dollars ($3.30) to HK$26.75 each, according to a term sheet seen by Dow Jones Newswires on Thursday. Its stake will fall to 13.6% from 18.6% after the deal.
The price range represents a 2.1% discount to a 1.7% premium to AIA's closing share price Thursday of HK$26.30. The range is lower than the HK$27.15 price AIG sold the shares at in March, but higher than the Asian insurer's 2010 IPO price of HK$19.68.
After the last sale in March, AIG had been in a lock-up period that prevented it from reducing its stake again until Tuesday. AIG Chief Executive had telegraphed the latest sale when he said in August that the company was "looking for the right time and the right price" to further reduce its holdings.
Mr. Benmosche has been raising billions of dollars through the sale of AIG assets that he has designated as no longer essential to the scaled-back company. Much of the money has been used to aggressively buy shares held by the U.S.
The government stake has been reduced to about 53% from 92%, and AIG is expected to buy more shares from Treasury this fall in a push that could turn the U.S. government into a minority shareholder. Previous sales by Treasury have included offerings to the public and to AIG, but even if AIG were the only buyer in the next round of sales, its $5 billion authorization would reduce the government stake to 49% at its current share price of $34.20.
When the government stake falls below 50%, the Federal Reserve will have the authority to regulate AIG, and Deutsche Bank analyst speculated in a note to clients Wednesday that the Fed may impose a temporary moratorium on future buybacks until it can conduct a stress test on AIG's capital.
Representatives from AIA and AIG declined to comment on the AIA share sale.
Investors and analysts said AIA's strong business fundamentals could help AIG price its offering at a premium.
In July, AIA reported its net profit for the six months ended June 30 climbed 10% from a year earlier, while its business value, a key measure of a life insurer's profitability, climbed 28%. More than half of analysts surveyed by FactSet rate the stock a "buy."
Another appeal is that the stock is a member of the Hang Seng Index, so funds that track the HSI have to purchase the company's shares.
AIG will be subject to a 90-day lock-up period once it completes the latest share sale, the term sheet said. That would mean the New York-based company can't sell its remaining AIA shares until December.
AIA shares have been falling since the March share sale because of expectations AIG would sell more stock, not because of a lack of confidence in the company's business fundamentals, fund managers say. Its relatively cheaper valuation could also drive up demand in AIG's share sale, they say.
AIA is trading at 1.38 times its embedded value, a measure used by investors to value life-insurance companies. That multiple is lower than the 1.4-1.5 multiples of the two largest Chinese life insurers listed in Hong Kong, Co. and Ltd., analysts said.
Even after this sale, AIG will remain the largest shareholder in AIA, owning 1.64 billion shares. The holding is valued at HK$43.13 billion, based on Thursday's closing share price.