Rescued from collapse by
the US government in 2008, AIG promised in September to repay the
US taxpayer in full. The insurer is making impressive strides
towards fulfilling this promise thanks to asset sales, the most
significant so far being the just-completed initial public offer of
its Asian unit, AIA.
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In a reaction
reminiscent of a gold rush, investors flocked to get their share of
American International Group’s (AIG) initial public offer (IPO) of
its Asian unit AIA Group on the Hong Kong Stock Exchange in
October.
The end result was a 9.6
times over-subscription of the IPO which for AIG brought in a
much-needed $20.51bn. This figure includes $2.71bn raised through
AIG’s exercise of its over-allotment option.
AIA’s debut on the exchange
on 29 October was equally successful, with its share price ending
the day 17% above its issue price. Following the IPO AIG still
retains a 32.9% stake in AIA which now has a market capitalisation
of about HK$270bn ($35bn).
The market capitalisation is
in line with the $35.5bn initial offer made by UK insurer
Prudential to acquire AIA from AIG earlier this year. The bid
failed when AIG rebuffed Prudential’s attempt to lower its offer
for AIA to $30.4bn.
As a major cash-raising
exercise, the successful IPO follows AIG’s sale of its American
Life Insurance Company (Alico) unit to US insurer MetLife for
$16.2bn of which $6.8bn is in cash and the balance in MetLife
securities earmarked for sale.
Alico has significant
operations in Europe and Latin America and holds the number-one
positions in the life markets of Russia and Chile in terms of
premiums written.
AIG has earmarked the total
of $36.71bn from the two transactions to repay the credit facility
extended to AIG by the Federal Reserve Bank of New York (FRBNY) of
about $20bn. This included accrued interest and to make payments on
other interests owned by the government.
On 30 September, AIG
announced a plan to repay the US government the total of about
$121bn still outstanding of the $136bn it received in
assistance.
AIG president and CEO Robert
H Benmosche said: “We promised the American taxpayers we would
repay them and the initial public offering of AIA, and that the
completion of the Alico transaction would move us closer to
delivering on our promise.”
US Treasury
happy
Representing the US
taxpayer, the US Treasury has, in an update published on 1
November, expressed confidence in AIG’s repayment
strategy.
According to the Treasury, as
part of the restructuring, AIG will draw up to $22bn in remaining
Troubled Asset Relief Programme (TARP) funds from Treasury to
purchase the FRBNY’s preferred interests in the special purpose
vehicles holding AIA and Alico. The Treasury will receive these
interests.
The Treasury added that the
assets held by these special purpose vehicles, which include, among
others, AIG’s remaining shares in AIA and the non-cash proceeds
received from MetLife for Alico, significantly exceed the amount of
the preferred interests.
Specifically, the Treasury
said, based on the market closing price of AIG on 29 October 2010,
the shares in the special purpose vehicles were worth $69.5bn, an
amount significantly exceeds the Treasury’s current $47.5bn cash
investment in AIG. After completion of this TARP transaction the
Treasury’s stake in AIG will increase from its current 80% to
92.1%.
More to
come
The AIA IPO and sale of Alico
represent key elements of AIG’s strategy to repay the US government
and are the largest transactions yet in a steady stream of capital
raising moves by AIG.
Among the most notable of
these was the sale of its Japan-based life insurance subsidiaries
AIG Star Life Insurance and AIG Edison Life Insurance to US insurer
Prudential Financial in a $4.8bn cash deal due to close in the
first quarter of 2011. AIG is retaining its general insurance
business in Japan.
Also in 2010, AIG announced
the sale of 80% of its wholly-owned consumer credit unit American
General Finance (AGF) to US investment management company Fortress
Investment Group. Although the selling price was not disclosed,
rating agency Moody’s Investor Services noted recently the amount
is believed to be $125m.
Overall, Moody’s estimates
that by mid-2010 total net cash received by AIG through
disinvestments since 2008 was $6bn.
Still on the selling block is
AIG’s Taiwan unit Nan Shan Life (NSL). Although an agreement had
been reached in 2009 to sell NSL to a Hong Kong-based consortium
NSL for $2.15bn, this was blocked by Taiwanese regulators. Moody’s
believes AIG will still find viable buyers for NSL.
Other AIG units which Moody’s
believe will be sold are AIG Financial Products, which was the
primary cause of AIG’s near-collapse in 2008; and International
Lease Finance Corporation (ILFC), the world’s largest aircraft
lessor. ILFC, which owns 950 jet aircraft, announced in August it
had repaid FRBNY the full $3.9bn in loans extended to it under
AIG’s overall funding.
Capping what is a positive picture of recovery, the
Treasury believes the US Government expects to earn a profit on its
loans to and investments in AIG, assuming the company’s
restructuring announced on 30 September is completed.
