American International Group Inc. hasn’t gotten a deposit called for under the deal to sell its plane-leasing unit to a Chinese investor group, presenting another challenge to divesting the business. AIG tumbled the most in six weeks in New York trading.
“The deposit amount was not received by the escrow agent when due,” AIG said today in a regulatory filing about the International Lease Finance Corp. unit.
A group led by New China Trust Co. Chairman Weng Xianding agreed in December to buy 80 percent of Los Angeles-based ILFC for about $4.23 billion, with an option to take a larger stake. The deal called for the buyers to pay a 10 percent deposit, tied to a review by regulators, and gives New York-based AIG the right to cancel the accord if the payment isn’t made.
“This is one of those issues where there are no guarantees,” said Meyer Shields, an analyst at Keefe Bruyette & Woods. “A lot of the optimism in AIG right now is still on the capital-return story, and this is a big chunk of the capital that’s still out there.”
AIG dropped 3.8 percent to $44.46 at 4:01 p.m. Jim Ankner, a spokesman for AIG, declined to comment, as did Steven Lipin at Brunswick Group, who represents the buyer group.
The insurer said May 13 it reached an agreement with the Chinese investors to extend until June 14 a deadline to complete the transaction. The deal is subject to approval by U.S. and Chinese regulators including the Committee on Foreign Investment in the U.S. Holly Shulman, a spokeswoman for the U.S. Treasury Department, declined to comment on the security-review process.
Two potential investors named in the original statement announcing the deal weren’t listed in a news release less than a week later issued by Lipin. An investment arm of ICBC International Holdings Ltd. said after the initial statement that it didn’t plan to join the deal. New China Life Insurance Co. also hadn’t agreed to participate, the South China Morning Post reported in December.
The buyer group includes China Aviation Industrial Fund and P3 Investments Ltd., according to both statements.
Five-year credit-default swaps tied to ILFC rose as much as 21.9 basis points to a mid-price of 284.8 basis points, the biggest jump since Dec. 17, according to prices compiled by Bloomberg. The contracts traded at 281.8 basis points at 4:02 p.m., which means it would cost the equivalent of $281,800 annually to protect $10 million of obligations for five years. The swaps typically rise as investor confidence deteriorates.
ILFC had about $24.1 billion in debt as of March 31, the unit said in a regulatory filing. The unit, with a fleet of about 1,000 owned and managed planes, has been among the hardest for AIG to divest as the insurer sold assets to repay a 2008 bailout and simplify the company.
AIG said in 2011 that it would conduct a public offering to cut its ILFC stake and reiterated that plan in 2012, then changed direction. Getting rid of the unit would be a “key milestone,” AIG Chief Executive Officer Robert Benmosche said on a May 3 conference call, citing the unit’s debt and its distance from the company’s main businesses of providing property-casualty coverage and life insurance.
“We are disappointed by this news,” Cathy Seifert, an equity analyst at S&P Capital IQ, said in a research note. “Still, we think ILFC is an attractive franchise and note that AIG may have other options, including an initial public offering.”
AIG’s 2011 sale of Taipei-based Nan San Life Insurance Co. to Ruen Chen Investment Holding Co. followed the collapse of a deal to sell the unit to Primus Financial Holdings Ltd. AIG chose to get rid of AIA Group Ltd. through public offerings after Prudential Plc backed out of a deal to buy the Hong Kong-based insurer.
AIG acquired ILFC in 1990 for $1.16 billion, data compiled by Bloomberg show. Under AIG’s ownership, the unit originally benefited from the ability to borrow money at low rates, an advantage that evaporated when the insurer was hobbled by losses tied to subprime mortgages.