American International Group Inc. (AIG), the insurer that counts the U.S. as its largest shareholder, said it is in talks to sell 90 percent of its plane-leasing unit to a group including New China Trust Co.
Other investors in the group are New China Life Insurance Co. and P3 Investments Ltd., together with China Aviation Industrial Fund and an investment arm of ICBC International, the New York-based insurer said yesterday in a statement. A deal may value AIG’s International Lease Finance Corp. at about $5.5 billion, according to a person familiar with the matter who asked not to be identified because talks are private.
At that valuation, the sale of a 90 percent stake would mark the biggest Chinese acquisition in the U.S., beating China Investment Corp.’s $3 billion purchase of a stake in Blackstone Group LP (BX) in 2007, data compiled by Bloomberg show. ILFC, based in Los Angeles, is the largest aircraft lessor in China, with a 30 percent market share and more than 175 aircraft leased to 16 airlines in the Greater China region, according to the company.
“ILFC by its nature is a business that requires financial leverage, and AIG is a company that would like to reduce its leverage,” said Paul Newsome, an analyst at Sandler O’Neill & Partners LP, who has a buy rating on the insurer. “Getting ILFC off of AIG’s balance sheet, I think would be viewed favorably and make the stock go up.”
AIG advanced 2.6 percent to $34.13 on the New York Stock Exchange yesterday after Bloomberg News reported the talks. The insurer said after the close of regular trading that superstorm Sandy cost the company about $1.3 billion after tax and reinsurance, and the stock retreated to $33.50 at 4:39 p.m. in extended trading.
Credit swaps protecting against losses on the debt of ILFC declined, suggesting higher investor confidence. A deal could be announced as soon as Dec. 10, according to a person familiar with the matter.
The insurer, which considered selling ILFC in 2009 as it worked to repay a $182.3 billion U.S. bailout, last year said that it planned an initial public offering of the unit. AIG has narrowed its focus to global property-casualty coverage and U.S. life insurance since its near collapse in 2008, divesting more than $60 billion in assets to help repay its rescue.
“They’re better served by having a simpler organization,” said Meyer Shields, an analyst at Stifel Nicolaus & Co.
AIG acquired ILFC in 1990 for $1.16 billion, data compiled by Bloomberg show. It had 918 aircraft in its leased fleet as of September, with a book value of $34.9 billion, according to the most recent quarterly report. The unit has more than 200 aircraft on firm order, including Boeing Co.’s 787 Dreamliner and Airbus SAS’s new A320neo.
AIG, led by Chief Executive Officer Robert Benmosche, has “consistently stated that ILFC is a non-core asset,” the insurer said in its statement. “Any possible transaction involving ILFC would be subject to required regulatory approvals, including those in the U.S. and China.”
ILFC credit swaps fell 130.6 basis points to 259.2 basis points as of 3:30 p.m. in New York yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Aircraft delivery financing will rise to $104 billion in 2013 from $95 billion this year, Kostya Zolotusky, managing director at Boeing Capital Markets, the Chicago-based planemaker’s finance arm, said in an interview this week. The figure will rise to $132 billion in 2017, he said.
Most lessors trade below book value, indicating aircraft assets may be overvalued, according to JPMorgan Chase & Co. ILFC said in a filing last month that its stockholders’ equity was $7.9 billion as of Sept. 30.
A group led by Sumitomo Mitsui Financial Group Inc. (8316) agreed in January to buy Royal Bank of Scotland Group Plc’s aviation division for about $7.3 billion in the world’s biggest acquisition of a leasing business.