-- American International Group aims to raise around US$2
billion by selling AIA Group shares
-- AIG's stake in AIA will fall to 13.6% from 18.6% after the
deal
-- AIG can sell remaining shares after a 90-day lock-up expires,
a term sheet says
(Recasts 1st paragraph, pricing in 4th paragraph, AIA's appeal
to investors in 7thh-8th paragraphs, previous stake cuts in 5th
paragraph, background on share price in the 15-16th paragraphs, and
analyst's comments in the 14th paragraph).
By Fiona Law and Prudence Ho
HONG KONG--American International Group Inc. (AIG) is seeking to
raise around US$2 billion by selling more shares in former
pan-Asian life insurance unit AIA Group Ltd. (1299.HK), in its
latest fund-raising exercise to help repay the U.S. government
bailout it received during the 2008 financial crisis.
The U.S. insurer also said in a statement it plans to buy back
another $5 billion in stock from the U.S. Treasury. AIG has been
aggressively buying back shares this year and is expected to buy
more from the Treasury this fall, as part of a push that could make
the U.S. government a minority shareholder before the November
elections and enable the company to fully repay its bailout sooner
than expected.
The Treasury Department sold $5 billion worth of shares in AIG
last month, its fourth sale so far, reducing the government's stake
to 55% and bringing down the amount the government needs to recoup
from the bailout to $25 billion.
AIG is selling 600 million shares in Hong Kong-listed AIA in a
range of 25.75 Hong Kong dollars (US$3.3) 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.
It sold two-thirds of the company, raising US$20.5 billion, in a
Hong Kong initial public offering in late 2010 to help pay off the
US$182.3 billion bailout. It sold an additional US$6 billion worth
of shares in March, leaving it with 2.2 billion shares in AIA.
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.
AIA's strong fundamentals could help the U.S. company price the
shares at a premium, investors and analysts said.
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, meaning the New York-based company can't
sell its remaining AIA shares during that time, the term sheet
said. A six-month lockup period expired Tuesday.
An AIA spokeswoman declined to comment.
AIA shares have been falling since the March 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 for
investment, lower than the 1.4-1.5 multiples of the two largest
Chinese life insurers listed in Hong Kong, China Life Insurance Co.
and Ping An Insurance (Group) Co. of China Ltd., analysts said.
But the overhang on the Asian insurer's Hong Kong-listed shares
will remain while AIG needs more funds to repay the U.S.
government, said Kenneth Yue, senior analyst at CCB International
Securities Ltd.
"I expect AIG will continue to sell either a third or half of
the remaining stake in AIA, every time when its lock-up period
ends, depending on market conditions, until it offloads most of its
shares," Mr. Yue said.
After the latest stake cut, AIG will remain the largest
shareholder in AIA, owning 1.64 billion shares valued at 43.13
billion Hong Kong dollars (US$5.56 billion) based on its closing
share price Thursday.
Deutsche Bank AG and Goldman Sachs Group Inc. are leading the
share sale, people familiar with the situation said Thursday,
adding Barclays PLC, Credit Suisse Group AG, Citigroup Inc., Morgan
Stanley and J.P. Morgan Chase & Co. are also handling the
transaction.
Write to Fiona Law at fiona.law@wsj.com and Prudence Ho at
prudence.ho@wsj.com
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