Published October 4, 2008

AIG to morph into global property, casualty firm

It will sell non-core business units to pay off US$85b govt loan

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(CHARLOTTE, North Carolina)

INSURER American International Group said yesterday that it plans to sell off its 'non-core' business units to pay off its massive government loan.

The plans, expected by Wall Street, drove up AIG's shares 19 per cent in mid-day trading. But it now leaves investors wondering if the sales will be enough.

AIG, one of the world's biggest insurers, said that it plans to retain its US property and casualty and foreign general insurance businesses. The New York-based insurer also said that it plans to retain an ownership interest in its foreign life insurance operations.

AIG, once the world's largest insurer, will refashion itself into a global property and casualty company with a stake in an overseas unit that sells life policies in China, South Korea and India, chief executive officer Edward Liddy said in a conference call. AIG may also sell its plane-leasing unit, consumer finance division, US car insurer, a reinsurance business and asset manager, he said.

'We won't exactly be the AIG of old, but we'll have a very secure position,' Mr Liddy said. 'This is going to be a formidable company that emerges from this.'



'I think what the Federal Reserve has provided us has been very generous and we are going to do everything we can not to have to go back to them.'

He added that he didn't expect a fire sale and buyers would have to assume the debt of AIG businesses they acquired.

However, he added that 'we'll sell as many assets as needed to repay our obligations'.

AIG shares were up 76 US cents at US$4.76 in mid-day trading.

'We are giving AIG credit that it can use its Fed-supported liquidity to pursue a measured and deliberate asset sale programme,' said CreditSights analyst Rob Haines in a research note.

So far, AIG has announced only one deal, a sale of its 50 per cent interest in London City Airport to its partner in the venture, Global Infrastructure Partners. It bought the stake as a joint venture with the private-equity fund in 2006 for a total price estimated around US$1.4 billion. The companies didn't disclose the terms of the deal.

However, it may sell its remaining stake in Blackstone Group, in which it spent US$150 million in 1998 for a 7 per cent interest. AIG recorded a US$398 million gain for the second quarter last year from selling some of the shares of the company which went public last year.

Mr Liddy said that the company has been contacted by 'numerous' parties regarding possible sales of businesses, and AIG will try to sell its operations to 'brand-name' buyers who have strong ratings and balance sheets.

He added that he wouldn't be surprised to see sovereign wealth funds providing resources to acquire some AIG businesses.

One unit that analysts have said could be sold is International Lease Finance Corp., which leases out more than 900 aircraft with asset values topping US$44 billion at the end of the second quarter.

Another unit that could possibly be sold is consumer-focused lender American General Finance Corp. Other businesses that AIG operates include life, commercial car and accident and health insurers.

On the brink of failure last month, AIG was bailed out when the government offered it a two-year US$85 billion loan to avoid bankruptcy during one of the most tumultuous times during the ongoing credit crisis that saw Lehman Brothers Holdings Inc file for bankruptcy protection and the sale of Merrill Lynch & Co to Bank of America Corp.

In return for the loan, the government received warrants to purchase up to 79.9 per cent of AIG.

As at Sept 30, AIG had drawn US$61 billion on the credit facility, of which about US$54 billion has gone towards its securities lending and financial products area. The rest of the money has been for other liquidity needs amid an 'unprecedented' freezing of credit markets, Mr Liddy said.

While the sale of some of AIG's businesses will be used to pay off the outstanding government loan, additional funds will be used to help address the company's capital structure, Mr Liddy said.

AP, Bloomberg, AFP