American International Group (AIG), the bailed-out US insurer, is raising as much as US$2 billion selling a stake in Hong Kong-based AIA as chief executive Robert Benmosche accumulates funds to repurchase his company's stock from the US Treasury Department.
AIG is offering about 600 million AIA shares at HK$25.75 to HK$26.75 each, according to a term sheet obtained by Bloomberg.
AIG planned to spend as much as US$5 billion buying back its shares, it said in a statement.
Benmosche is raising funds to buy back stock of New York-based AIG from the United States, which still has a stake of 53 per cent, about four years after the government rescue.
Treasury has trimmed its holding from 92 per cent through four share sales.
"If they can free up more cash, they'll buy back more stock from the US taxpayer," Cliff Gallant, an analyst at KBW, said before the sale was announced. "Everybody benefits by having the government exit, and for AIG to truly break free from that, I think it's a positive for the shareholders."
It is the third offering of shares in AIA by AIG, which had cut its stake to 33 per cent in a 2010 offering that raised about US$20.5 billion. AIG sold US$6 billion more shares, priced at HK$27.15 each, in March. AIA, the third-largest Asia-based insurer by market value, closed 0.6 per cent higher at HK$26.30 yesterday.
AIA has repositioned itself as an independent insurer after losing share of new business during the global financial crisis because of ties to AIG, which would have collapsed without government aid.
The Hong Kong-based insurer has delivered eight consecutive quarters of growth in the value of new business under chief executive Mark Tucker, who was hired by Benmosche in July 2010.
"Mark Tucker has done an outstanding job," Benmosche said on an August 3 conference call. "We're looking for the right time and the right price to monetise our ownership of AIA."
The bailout forced AIG to scale back in Asia, while rivals including MetLife and Prudential Financial expanded in the region by buying units from Benmosche.
AIA operates in markets including Hong Kong, Thailand, the mainland, Singapore, Malaysia and South Korea.
Maurice "Hank" Greenberg, who had built AIG during his four-decade leadership of the firm until 2005, called AIA one of his company's "crown jewels".
The sale of AIA shares and the winddown of two bailout vehicles holding mortgage debt will reduce volatility in AIG's earnings, which had swung with fluctuations in the market value of the assets. Benmosche is seeking to focus on global property-casualty coverage and US life insurance and retirement products.
He turned to public offerings to divest AIA after the collapse in 2010 of a deal to sell the insurer to Prudential for about US$35.5 billion. The London-based firm sought a lower price under shareholders' pressure, and AIG's board rejected a reduced bid.