The Banking and Strategy Initiative

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AIG sells fast to make $80b

AIG (used earlier)AIG is in quite a turn having to sell most of its profitable Asian and other International Insurance and Investment Management Businesses ( also see here)

While it announced the division of its businesses into AIA + Alico in Life in Asia, Chartis for Property & Casualty and the Domestic US insurer, it has not gone much further. Till date it has sold the following:

1. Energy & Infrastructure Assets for $1.9 billion : A power generation plant operated by First Energy, a tax equity interest in a Texas wind farm and two lease equity interests in rail car portfolios. Earlier the AIG financial products unit sold an interest in Tenaska Marketing Ventures, its interest in two volumetric production payment transactions and its stake in three Spanish solar power plants

2. Hong Kong based Consumer Finance Unit for $627 million

3. AIG Systems Solution, its IT Outsourcing Unit sold to Mphasis (800 staff would have easily netted $35-50 million but not more than $75 million with all premium) which is likely small change of Rs 225 crores

4. It has earlier sold its Canadian Life subsidiary for $308 million and its Aircraftleasing business ILFC is expected to fetch less than $2.2 billion (assets worth $7 billion)

5. Its Life Insurance Premium Finance business was sold to Wintrust Financials (Ill.) for upto $740 million

According to Businessweek in a report published on Sept. 23, 2008, the Credit Suisse Group (CS) put an aftertax value on AIG’s assets at anywhere from $94 billion to $122 billion. The final tally will depend on how big a “distressed discount” it will face.

It is trying to sell the following for which deals are in process:

A. AIG Investments ( see article here) Earlier proposed to be bought by Franklin Templeton and Temasek, they are still being tracked by Crestview partners and Religare Enterprises of the erstwhile pharma major Ranbaxy. This sale will net at least $300 million, while AIG is likely holding out for $500 million for $80 billion AUM. AIG Investments has lot of fresh investments in Africa and Latin America (private Equity funds)

B.  The Global Real Estate Management Business with $12.4 billion in assets and $5.2 billion likely has suitors for $9 billion including the AIG and TARP advisors Blackstone(BX) and Blackrock. According to the dealcom, the Japanese HQ itself is worth $1 billion

C. The AIA and ALICO IPOs could net $25 billion including purchases by Benmosche’s erswhile Metlife, for which Benmosche will have to clear conflicts of interest ( by staying away from negotiations?) . Benmosche owns about 2.5 million diluted equity ( incl options ) of Metlife

D. Private Equity boutiques like Lightyear have shown interest in AIG advisors. Surprisingly, no such interest from the PE firms has come in AIG Global Investments. AIG ADvisors includes AIG Retirement Advisors ( Sage, FSC and Royal Alliance) which has lost 1 in 6 of their Advisors. As is the norm, most of the first bidders including Warburg Pincus have retreated, and the situation is very tense

E. Chartis carved out of all of AIG’s P&C business desires to sell a 20% stake through IPO

F. The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad.. also this unit (Nan Shan was out of cash earlier last year)

Though some of the initial deals have gone well, each of these deals seem likely to be pie in the sky w.r.t valuations and AIG faces a challenging task ahead.

On the other hand it has been stuck with proposals to sell $20 billion worth of AIA and ALICO Life Insurance in Asia, and another 20% in its restructured Chartis business (P&C) and is not likely to get a price that will pay off the expected debt out of the $80 billion outstanding. They have however made proprietary profits to pay off $2.67 billion in the 2nd Quarter, which is not much considering its global assets in life are $560 billion !!

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