American International Group Inc. (AIG) received a delayed deposit yesterday under the agreement to sell its International Lease Finance Corp. unit to Chinese investors.
The payment was disclosed in a regulatory filing by New York-based AIG, which said last week that the deposit hadn’t been made on schedule. A group led by New China Trust Co. Chairman Weng Xianding agreed in December to buy 80 percent of the Los Angeles-based aircraft lessor for about $4.2 billion in a deal that required a 10 percent deposit.
AIG had the right to terminate the agreement after the group missed the payment, Chief Executive Officer Robert Benmosche said June 4 at a conference sponsored by Deutsche Bank AG. He is getting rid of ILFC to reduce debt and simplify AIG as he focuses on insurance. The transaction needs approval from U.S. and Chinese regulators.
“It’s a very complicated situation,” Benmosche said at the conference. “You’re dealing with a complicated property between two complicated governments.”
AIG slipped the 0.5 percent to $43.90 yesterday, the second-best performance in the Standard & Poor’s 500 Insurance Index as all 22 companies in the benchmark declined.
The buyers’ missed payment last week may reflect “administrative” delays in China, rather than unease with the original deal, Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a note to investors on June 2.
“The strategic logic for a re-purposed ILFC as a Chinese air lessor and long-term champion of Chinese manufacturers remains clear,” he wrote. “ILFC should benefit from lower funding costs from domestic Chinese lenders and, as a Chinese firm, ILFC should capture an even greater share of China’s rapidly growing airplane leasing demand.”
Steven Lipin at Brunswick Group, a spokesman for the Chinese buyers, didn’t respond to an e-mailed request for comment about why the deposit was delayed and the prospects for completing the deal. AIG’s Jim Ankner declined to comment.
ILFC has been one of the hardest assets to sell since 2008 when the insurer began divesting units to repay a U.S. bailout. AIG said in 2011 that it could cut its stake through an initial public offering, and Benmosche said June 4 that an IPO was an option if the China deal collapsed.
Benmosche is seeking to return capital to shareholders after repaying the government last year. He has said that he first needs to focus on reducing the costs tied to borrowing funds. ILFC had about $24.1 billion in debt as of March 31 and owned or operated a fleet of about 1,000 aircraft, according to a regulatory filing.
The payment of the deposit is a “positive step,” wrote Jay Gelb, an analyst at Barclays Plc (BARC), in a note that said the bank has a 19.5 percent stake in New China Trust. “That said, it remains unclear whether other hurdles, such as required regulatory approval, remain outstanding.
Five-year credit-default swaps tied to the plane lessor’s debt climbed 18.8 basis points to a mid-price of 318.5 basis points at 5:02 p.m. in New York yesterday, according to prices compiled by Bloomberg. That means it would cost the equivalent of $318,500 annually to protect $10 million of obligations for five years. Swaps typically rise as investor confidence deteriorates.
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