American International Group Inc., which received a $182.3 billion bailout after the collapse of Lehman Brothers Holdings Inc., is selling $6 billion of AIA Group Ltd. shares to pay back the U.S. government.
The New York-based insurer, majority owned by the U.S., is offering about 1.7 billion AIA shares at HK$27.15 to HK$27.50 a share to institutional investors who weren't identified, according to a sales document obtained by Bloomberg. AIG will hold about 19 percent of AIA after the stock sale.
AIG was rescued in September 2008 as it was forced to pay out insurance on mortgage-linked assets after the bankruptcy of Lehman, the biggest underwriter of mortgage-backed securities. The AIA share sale also helps remove some investor concerns a bulk sale of AIG's stake may damp the stock of the Asian insurer.
"AIG needs the money to repay the government," said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. "For holders of the Hong Kong- listed company, it starts to remove a known overhang so it's a long-term positive, but short term it hurts."
AIG sold about two-thirds of the Hong Kong-based life insurer in a 2010 initial public offering. Its stake before the latest share sale has a market value of about $15 billion, which is part of the collateral backing obligations to the Treasury. Chief Executive Officer Robert Benmosche said last month that AIG may wait to sell its AIA stake and use the money to reduce the government's 77 percent ownership.
AIA's Hong Kong-traded shares are suspended today because of the share sale, it said in a statement to the city's stock exchange. AIA has climbed 27 percent since the close on its first day of trading on Oct. 29, 2010.
AIG has sold more than $50 billion in assets to repay the government rescue, Chairman Steve Miller said in a Bloomberg Television interviewed aired on Feb. 3. The insurer will decide when "the timing is right" to get rid of its AIA stake or buy more shares.
The offering price represented a discount of as much as 7 percent on the Hong Kong-based insurer's closing price of HK$29.20 on March 2. The sale is expected to be priced no later than tomorrow, according to the statement.
AIG held 3.96 billion shares, or a 33 percent stake, in AIA as of May 31, according to the latter's interim report last year. The U.S. company has agreed not to sell its remaining shares in the Asian insurer for another 180 days, according to the sales document today.
The Treasury sold 200 million AIG shares on May 24 for $29 each. The government must receive an average of at least $28.72 a share to recoup its investment.
AIG shares surged 28 percent this year to $29.80 on March 2, as the insurer reported fourth-quarter profit of $19.8 billion tied to a tax benefit. The stock closed above the government's break-even price on Feb. 28 for the first time since July.
Reacquiring or selling the stake completely could also reduce swings in its quarterly earnings, since the holding is marked to market every three months. AIG posted a $4.11 billion third-quarter loss in November, partly fueled by a $2.3 billion decline in the value of its AIA shares.
AIG was rescued in 2008 as bets on the mortgage market soured. The bailout was revised at least four times as the U.S. extended more credit and lowered the interest charged.
As of Dec. 31, AIG owed the Treasury $8.4 billion to redeem interests in special-purpose vehicles related to its rescue, according to a presentation on the insurer's website. Collateral backing the government's stake in the obligations includes the AIA holdings and plane-leasing unit International Lease Finance Corp.
Benmosche halted the pace of asset sales when he took over in 2009, saying the company needed time to find the best prices. Last month, AIG booked a $1 billion mark-to-market gain on its AIA holdings upon announcing 2011 profits.
"We can think about using the proceeds if we decide to sell AIA potentially for capital management," Benmosche, 67, said at a Feb. 15 investor conference in New York. "Capital management means we can buy some of the overhang from the U.S. Treasury."
AIA, the third-largest Asia-based insurer by market value, operates in 15 markets including Hong Kong, China, Malaysia, Thailand and Singapore.
Chief Executive Officer Mark Tucker, 54, has overseen a 10 percent increase in AIA's embedded value in the year to November to $27 billion. The estimate of the economic value of life insurance business using actuarial and investment assumptions is used to value life insurers.
AIG sold a Taiwan unit Nan Shan Life Insurance Co. for $2.16 billion last year. In 2010, it sold American Life Insurance Co. to MetLife Inc. for about $16 billion.