Yesterday, American International Group Inc. (AIG - Analyst Report) announced its plan to sell the remaining 13.69% stake in its Asian wing – AIA Group Limited (AIA) – for $6.45 billion. The company’s holding in AIA has been traded to a group of institutional investors.
AIG priced its present stake of 1.65 billion shares held in AIA for HK$30.30 (about US$3.91) per share. On Monday, AIA closed at HK$30.65 at the Hong Kong Stock Exchange, reflecting a discount of 1.1%. Initially, the deal was promoted in the range of HK$29.65–30.65 a share. The transaction is slated to close on December 20, 2012, subject to fulfillment of regulatory compliances.
AIG appointed Goldman Sachs Group Inc. (GS - Analyst Report) and Deutsche Bank AG (DB - Analyst Report) as the joint-managers, while Citigroup Inc. (C - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report) and Morgan Stanley (MS - Analyst Report) are the book-runners of the sale.Additionally, the net proceeds from the sale are expected to be utilized for enhancing AIG’s operating leverage.
In September this year, AIG had eliminated 6% share in AIA for $2.0 billion. Before this, in March 2012, the company had raised $5.6 billion from the sale of 1.7 billion shares or 13% stake in AIA.
Previously, AIG had raised about $20.5 billion from the initial public offering (IPO) of AIA at the Hong Kong stock exchange in October 2010, much higher than about $15 billion expected earlier. However, AIG was then subject to a lock-in period of 6 months and was also required to hold at least a one-third stake in AIA for a year, post the listing.
Nevertheless, AIG had successfully vended off about two-third of its stake in its AIA during October 2010, primarily to cornerstone investors since such investors have a lock-in period of 6–12 months on their investments. As of September 2012, the company was free of any sale restrictions within AIA. On the whole, AIG raised $35 billion from AIA’s IPO and stake sale.
With the complete elimination from AIA as well as a thorough riddance from the US government bailout loan of $182.3 billion and its ownership in the company, this month marks a significant period in the history of AIG. The sooner-than-expected wipe-off of Treasury’s stake accelerates the capital flexibility of the company and helps retain the investors’ confidence. However, we believe that AIG is liable to be confronted by fresh regulatory challenges from the Fed upon the complete dilution of the Treasury’s stake.
Moreover, intense competition, higher expenses, volatile equity markets, widening credit spreads and reduced interest rates continue to showcase declines that is expected to persistently pressurize the margins. Thus, we remain on the periphery at the moment to analyse the managerial and financial developments at AIG going forward.
Consequently, we maintain a long-term Neutral outlook on AIG with Zacks Rank #3, which implies a short-term Hold rating and indicates no clear directional pressure on the stock in the near term.