AIG’s Nan Shan Sale Gives CEO Benmosche Flexibility on Keeping AIA Stake

American International Group Inc. (AIG)’s $2.16 billion sale of a Taiwan unit may increase Chief Executive Officer Robert Benmosche’s flexibility as he weighs whether to retain a stake in AIA Group Ltd. (1299) while repaying rescue funds.

Benmosche sold the Nan Shan life insurer to Ruen Chen Investment Holding Co. as part of a plan to repay a government bailout that swelled to $182.3 billion. The U.S. Treasury Department said in a statement yesterday that it will receive funds from the sale to help pay AIG’s obligations to a special purpose vehicle that’s backed by AIA shares, plane-leasing unit International Lease Finance Corp. and other assets.

AIG divested 67 percent of Hong Kong-based AIA last year in an initial public offering that raised $20.5 billion. The remaining interest added $1.52 billion to AIG’s second-quarter profit as the Asian insurer’s stock price surged. AIA has climbed 19 percent this year and is the top gainer in the 73- company Bloomberg World Insurance Index.

“It’s been a great investment, so they may want to hold onto it,” said Paul Newsome, an analyst at Sandler O’Neill & Partners LP. Using Nan Shan proceeds to repay the special purpose vehicle gives AIG “more flexibility as to what to do with ILFC and other assets, too. It adds in general to their cash-flow flexibility.” He advises clients to buy AIG stock.

AIG has slumped 53 percent this year on the New York Stock Exchange. That compares with the 9.3 percent slide in the Standard & Poor’s 500 Index.

Underwriter Agreement

The Treasury holds a $9.3 billion preferred interest in the special purpose vehicle after receiving proceeds from the Nan Shan sale, according to a statement yesterday from New York- based AIG. Benmosche, 67, has said that he may delay or forego selling AIA shares. AIG’s agreement with underwriters allows Benmosche to begin lowering or hedging the stake in October.

“We’re looking potentially at monetizing other assets that we have so that AIA might be sold much later on, if at all,” Benmosche said on a conference call with analysts on May 6.

AIG may sell part of the ILFC plane-leasing unit in a public offering, a person familiar with the plans said last month. The sale could fetch $2 billion, said the person, who declined to be identified because the discussions are private.

AIG had sought to keep a majority holding in AIA after its 2008 bailout. The plans were altered for the Hong Kong-based division as the size of AIG’s rescue climbed. A subsequent plan to sell the unit to Prudential Plc fell apart.

Photographer: Maurice Tsai/Bloomberg

People exit the Nan Shan Life Insurance Co. headquarters in Taipei, Taiwan. Close

People exit the Nan Shan Life Insurance Co. headquarters in Taipei, Taiwan.

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Photographer: Maurice Tsai/Bloomberg

People exit the Nan Shan Life Insurance Co. headquarters in Taipei, Taiwan.

Greenberg’s Crown Jewel

AIA, the third-largest Asia-based life insurer by market value, declared its first dividend and reported earnings that beat estimates last month. Maurice “Hank” Greenberg, who built AIG during his four-decade leadership of the firm until 2005, called AIA one of his company’s “crown jewels.”

The deal to sell 97.57 percent of Nan Shan to Ruen Chen received final approval from Taiwan’s financial regulators in July. A previous plan was tabled last year.

“This is another important milestone in AIG’s remarkable turnaround,” Tim Massad, the Treasury’s assistant secretary for financial stability, said in the statement announcing the insurer’s payment to the government. “We continue to make progress in recovering the taxpayers’ investments in AIG.”

AIG repaid the remaining $21 billion it owed to the Federal Reserve Bank of New York. Treasury converted its $49.1 billion preferred stake into 92 percent of AIG common stock in January. The holding was reduced to 77 percent in a May share sale. AIG’s outstanding balance to the Treasury is $51 billion, according to yesterday’s statement.

Photographer: Jerome Favre/Bloomberg

AIG divested 67 percent of Hong Kong-based AIA last year in an initial public offering that raised $20.5 billion. Close

AIG divested 67 percent of Hong Kong-based AIA last year in an initial public offering... Read More

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Photographer: Jerome Favre/Bloomberg

AIG divested 67 percent of Hong Kong-based AIA last year in an initial public offering that raised $20.5 billion.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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