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AIG's $35.5 billion sale of Asian unit to help fund bailout repayment

SAN FRANCISCO — American International Group took its biggest step yet on Monday toward repaying money it got from the U.S. government's massive bailout of the insurance giant.

AIG agreed to sell AIA, its Asian life insurance business to Britain's Prudential PLC for roughly $35.5 billion.

The deal is the largest insurance acquisition ever, according to Thomson Reuters data. It gives AIG about $25 billion in cash that can be used to quickly repay some of the government's support.

More important, the deal may also buy AIG chief executive Robert Benmosche more time to build equity value for the insurer's shareholders before the government withdraws support.

"The administration supports the board of directors at AIG in its decision to sell and recognizes this is a major step in the AIG restructuring plan to de-leverage, de-risk and pay back taxpayers," a Treasury spokeswoman said.

CreditSights, an independent fixed-income research firm, called the AIA sale the "biggest single step in repaying U.S. taxpayers."

AIG is also reportedly negotiating the sale of Alico, another large Asian insurance business, to MetLife for roughly $15 billion.

Including proceeds from that deal and the AIA transaction, along with AIG's remaining businesses, the insurer's assets are now worth more than its outstanding senior debt of almost $64 billion, CreditSights estimated. Even in a worst-case scenario, there would be close to 100 percent asset coverage, the research firm said.

Catherine Seifert, an insurance analyst at Standard & Poor's Equity Research, said AIG's stated book value includes a lot of intangible assets with values that may not be fully realized.

Still, the AIA deal "should provide AIG and its new leadership team with important credibility as it continues to restructure," Seifert wrote Monday in a note to investors.

If the government is satisfied enough with the progress AIG is making reorganizing and selling businesses, it may leave support in place for longer, giving CEO Benmosche and the insurer's other managers more time to build equity value.

Before the AIA deal was announced Monday, AIG had sold more than 20 businesses since September 2008, raising more than $10 billion in proceeds.

AIG's $35.5 billion sale of Asian unit to help fund bailout repayment 03/01/10 [Last modified: Monday, March 1, 2010 7:53pm]

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