AIA Group Ltd. (1299), the third-largest Asia-based insurer by market value, fell the most in more than five months after American International Group Inc. (AIG) sold $6 billion worth of its shares to help repay a government bailout.
AIA declined 8.4 percent to HK$26.75, the most since Sept. 22 and outstripping the 2.2 percent fall in the city’s benchmark Hang Seng Index. New York-based AIG sold 1.72 billion shares of the Hong Kong-based insurer at HK$27.15 each to institutional investors yesterday and ceased to be AIA’s controlling shareholder, AIA said in an e-mailed statement today.
The sale reduces uncertainty about when and how AIG will exit its remaining holdings of the Asian insurer after it sold a majority stake via its initial public offering in October 2010 to help repay the $182.3 billion bailout. The shares declined today after the sale was priced at the lower end of a target range and 7 percent below AIA’s closing price on March 2.
“AIG’s stake in AIA has been an overhang since the day when AIA went public, given its enormous size,” said Wang Lei, who helps manage about $40 billion of assets as co-fund manager of Thornburg International Value Fund in Santa Fe, New Mexico.
The AIA stock, offered at HK$27.15 to HK$27.50, was the largest share sale globally excluding rights issues this year, according to data compiled by Bloomberg. Companies and their shareholders raised more than $58 billion from initial public offerings and secondary share offerings globally this year, according to the data.
Hang Seng Index (HSI)’s volume more than doubled its 30-day average to 3.9 billion shares today, amid the selloff of AIA shares. About 1.9 billion AIA shares changed hands today, compared with the daily average of 27.9 million shares this year through Mar. 2.
The shares sold by AIG represented a 14 percent stake in AIA and were priced at a 7 percent discount to the Hong Kong company’s closing price on March 2. AIG is restricted from selling its remaining 18.6 percent holding until Sept. 4, the U.S. insurer said in a separate statement.
AIG was rescued in September 2008 after the collapse of the subprime housing market and Lehman Brothers Holdings Inc. triggered credit rating downgrades of the insurer. It has repaid much of the government bailout through asset sales. The Treasury still holds about three-quarters of the company’s stock and other AIG-related assets, backed by collateral including the AIA stake.
AIG sold about two-thirds of the Hong Kong-based life insurer in the 2010 IPO. Its stake before the latest share sale had a market value of about $15 billion. Proceeds from the latest sale will be used to lower $8.4 billion AIG owes the Treasury to redeem interests in special-purpose vehicles related to its rescue.
There is a general expectation that AIG will sell its stake, said John Pearce, Melbourne-based chief investment officer of UniSuper Management Pty Ltd., which manages about $30 billion of pension assets.
“So the quickest they exit their position, the better as it reduces uncertainty,” Pearce said in an e-mail.
As a result of yesterday’s sale, Jeffrey Hurd and Jay Wintrob, two AIG-nominated non-executive directors, have informed AIA of their plans to resign from its board, the Hong Kong-based company said in the statement.
AIG has divested more than $50 billion in assets to repay the government rescue, including non-U.S. life insurers and a consumer lender. The firm sold a $500 million stake in Blackstone Group LP in a block trade last week, according to a person familiar with the matter who asked not to be identified because he wasn’t permitted to speak about the transaction.
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