American International Group Inc launched a widely-expected sale of a stake in its former Asian unit AIA, a move aimed at providing the bailed-out insurer with partial funding to repurchase up to $5 billion of its stock from the U.S. government.
AIG's sale of up to $2 billion of AIA Group Ltd shares comes two days after a lock-up period expired, but is just about a quarter of the $7.6 billion worth stake the U.S. insurer owned and could have sold. AIG had already sold $6 billion worth of AIA shares in March.
AIA, Asia's third-largest insurer, was spun out of its parent company in October 2010, when AIG Chief Executive Robert Benmosche oversaw the company's listing in Hong Kong after a failed takeover offer from Prudential Plc.
With the latest sale, AIG will pocket $28.5 billion through its stake reductions in AIA, including a $20.5 billion initial public offering two years ago. Since the listing, AIA's shares have soared about 34 percent and become a top choice of fund managers looking to benefit from growing wealth in Asia and booming demand for insurance and other financial products.
AIG is offering about 600 million shares in a range of HK$25.75 to HK$26.75 each, equivalent to a discount of 2.1 percent and a premium of 1.7 percent to AIA's Thursday close of HK$26.3 ($3.39), a term sheet of the deal showed. It is restricted from selling the remaining $5.6 billion stake for three months, the term sheet showed.
The partial sale of its AIA stake surprised some Hong Kong bankers and investors, who expected the company to dispose of its entire stake. It was also unusual for AIG to offer the shares at a premium, when block trades normally come at a discount to attract investors to the offer.
"This is a very strange block sale, because they're selling the shares at a premium," said Kenneth Yue, an analyst at CCB International in Hong Kong. "At the end of the day, this is small compared to AIG's overall holding, and so it doesn't remove much of the overhang."
Benmosche said in May AIG would sell its shares in AIA in September, once the lockup expired, but early in August he told an analyst conference call AIG was looking for the right time and the right price to sell the stake.
AIA has built a sprawling and successful business across the region, with an army of hundreds of thousands of agents. In July it reported better-than-expected first-half results, with net profit climbing 10 percent to $1.44 billion.
ASIA DEAL SLUMP
The AIA transaction comes amid a slump in equity deals in Asia-Pacific, where volumes so far in 2012 are down 33 percent to $98.2 billion, according to Thomson Reuters data. Deal-starved bankers in Hong Kong jostled for a role in the AIA sale, looking for a boost to their league table rankings.
Since a 2008 bailout that swelled to $182 billion, AIG has worked to shed business units and pay back the U.S. government, while federal officials overseeing the arrangement have sold down its own stake in the insurer.
The U.S. Treasury in August reduced its stake in AIG to 55 percent by selling nearly $6 billion worth of shares for $30.50 per share. AIG is up sharply since then, with the stock closing at $34.81 on Wednesday.
AIG at the time said it would buy back $3 billion of its shares, but on Thursday said it would buy back up to $5 billion.
Deutsche Bank and Goldman Sachs were hired to jointly manage the $2 billion block sale, the term sheet showed.
(Additional reporting by Vikram Subhedar, Clare Baldwin, Kelvin Soh and Denny Thomas; Editing by Michael Flaherty and Muralikumar Anantharaman)