Reuters: AIG selling $6 billion of AIA shares, to repay bail-out
AIG is offering about 1.7 billion shares in a range of HK$27.15-27.50 per share – a discount of up to 7 percent to Friday’s close of AIA shares, according to a term sheet seen by Reuters on Monday. Trading in AIA shares was suspended.
AIG announced the sale, via a placement with institutional investors, in a statement, but did not specify the amount. It expects to use the net proceeds to reduce the balance due to the U.S. Treasury Department’s preferred equity interest in a special-purpose vehicle (SPV) in which AIG holds the AIA shares.
The U.S. Treasury owns 77 percent of AIG following a massive $182 billion bailout in the wake of the 2008 global financial crisis. AIG holds around a one-third stake in AIA which, at Friday’s close, was worth a little over $15 billion.
As of December 31, AIG owed the Treasury $8.4 billion to redeem interests in the SPV as part of the bailout.
Goldman Sachs (GS.N) and Deutsche Bank (DBKGn.DE) are handling the share sale, according to two sources with direct knowledge of the process.
Bankers plan to approach institutional investors and fund managers who were interested in AIA’s $20.5 billion Hong Kong IPO in 2010 – which ranks as Asia’s third-largest public listing – but who weren’t able to buy into the stock at the time.
The deal should be “well-distributed” among different investors, instead of large chunks going to just a handful of buyers, according to one of the sources, neither of whom wanted to be named as they are not authorized to speak publicly on the matter.
“AIG is doing this sale at the right moment,” said Kenneth Yue, Hong Kong-based analyst at CCB International Securities.
“If you look at new business growth of AIA last year, it went up 40 percent. I believe they’ve gone to the peak already – it would be very challenging for them to increase their new business value going forward by 40 percent every year.”
While Yue believes AIG is getting a good price for its AIA stake, he said AIG’s ownership will remain an overhang for AIA until the U.S. insurer sells out completely.
Shares of AIA, run by former Prudential Plc (PRU.L) executive Mark Tucker, have risen 47 percent since early-October, and last week touched a 7-month high. The shares closed at HK$29.20 on Friday.
AIA was founded in Shanghai in 1919 by U.S. entrepreneur C.V. Starr. Twenty years later, Starr temporarily relocated to the United States to avoid political instability in Asia and, following the Second World War, decided to run his U.S. businesses from New York. Those businesses came to be known as AIG, and its shares began trading in New York in 1984.
Now Asia’s third-largest insurer, AIA remained AIG’s Asia arm, building a sprawling and successful business across the region, with an army of hundreds of thousands agents.
AIG was forced to spin off AIA, its ‘crown jewel’, and other assets following the U.S. government’s rescue of the stricken U.S. insurer after the financial crisis.
AIA’s initial public offer came after a surprise, but ultimately doomed, bid by British insurer Prudential.
Chief Executive Robert Benmosche has been coy about AIG’s plans for its AIA stake. As recently as February 24, AIG said it had not decided what to do with the stake, and had earlier hinted it may even increase its holding.
AIG can sell around $8 billion of its stake under the terms of its AIA stake ownership. The lock-up on the remainder expires late next month. Pricing of the AIA share sale will occur no later than Tuesday, AIG said.
After AIG’s recapitalisation early last year, the U.S. government was left with a 92 percent stake in AIG’s common stock, and preferred interests in two SPVs – one holding a stake in MetLife (MET.N) and one the AIA stake……Learn More
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