Posted on Monday, March 5th, 2012 | In Current Market News, Stocks to Watch
In an attempt to repay the government bailout loan, American International Group Inc. (AIG) disclosed its plans earlier today to raise funds from the part-sale of its left over one-third stake in its Asian wing – AIA Group Limited (AIA).
According to Reuters and Bloomberg, AIG is looking forward to selling nearly approximately 1.7 billion shares in AIA at about 7% discount to the latter’s closing price of HK$29.20 on Friday, at the Hong Kong stock exchange, to raise over $6 billion. While the shares will be priced no later than tomorrow, AIG’s share in AIA was worth $15 billion at last week’s closing price.
Meanwhile, all the shares will be sold among the institutional investors through private placement, although they remain unnamed. AIG will still hold about 19% of ownership in AIA. Reuters also reported that AIG has appointed Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DB) as the global joint coordinators for the sale.
Previously, AIG had raised about $20.5 billion from the initial public offering (IPO) of AIA at the Hong Kong stock exchange in October 2010, much higher than over $15 billion previously expected. However, AIG was then subject to a lock-in period of 6 months and was also required to hold at least a 30% stake in AIA for a year, post the listing.
Nevertheless, AIG had successfully vended off about two-third of its stake in its AIA during October 2010, primarily to cornerstone investors since such investors have a lock-in period of 6-12 months on their investments. While AIG can currently sell about $8.0 billion worth of its stake in AIA, the lock-in on the left over stake expires at the end of next month.
Post the recapitalization, asset disposals and raising funds through stock and debt, the US Treasury’s stake in AIG was reduced to 77% from 92% in early 2011, which is expected to be sold in the forthcoming years with the aim of not bearing a loss on AIG’s total $182.3 billion bailout amount. The government’s break-even price is $28.73 per AIG share.
Alongside, the US government also had preferred interests in two special purpose vehicles (SPVs). One of this was related to the sale of ALICO to MetLife Inc. (MET) and has been paid off, while the other holding was a stake in AIA.
At the end of 2011, AIG owed the Treasury $8.4 billion to redeem interests in the SPV as part of the bailout, which will be partly reduced from the net proceeds of the latest sale of AIA stake, leaving about $2.4 billion of this SPV loan outstanding.
Last week, AIG also raised $500 million by divesting its entire stake in a private equity firm – Blackstone Group, which was being held since 1998. The sale was another small attempt to get rid of its non-core operations to reduce risk and de-leverage, while focus on its core business.
Overall, AIA has always been a feather in AIG’s cap and we expect the company to benefit from the good timing of the sale and AIA’s outstanding performance. The pan-Asian insurer grew by 40% in 2011 based on its strong demand, modest pricing and good positioning in the market. Being one of the top three insurers, AIA is well positioned in the Hong Kong and related Asian markets based on its reputation of fair performance.
AMER INTL GRP (AIG): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
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