The U.S. Department of Treasury said late Sunday that it has launched an offering for $18 billion worth of American International Group, Inc. (AIG: Quote) common stock as the federal government looks to further slash its stake in the insurer.
In addition to the $18 billion underwritten public offering, par value $2.50 per share, the US Treasury has also granted a 30-day option to the underwriters for the offering to purchase up to an additional $2.7 billion of AIG common stock to cover over-allotments, if any.
The offering is being primarily managed by Citigroup, Inc. (C), Deutsche Bank AG (DB), Goldman Sachs Group, Inc. (GS) and JPMorgan Chase & Co. (JPM).
The move was widely expected, but such a large repurchase of shares was unexpected as it would slash the Treasury's stake in AIG to about 20 percent or more than half its current holding of about 53 percent.
Last week, AIG announced its intention to repurchase up to $5 billion shares of its common stock, par value $2.50 per share, from the U.S. Treasury. It had also raised gross proceeds of $2 billion from the sale of the ordinary shares of Hong Kong-listed American International Assurance Group Ltd. (AAGIY) or AIA, to fund the repurchase.
In what will be its largest repurchase of AIG common stock, the U.S. Treasury will slash its stake in AIG to now being a minority stake holder from its current holding of about 53 percent. The federal government would have now pruned its stake in AIG to about 20 percent after five multi-billion offerings since May 2011.
Meanwhile, the number of stock being sold and the timing of the completion of the current offering were not revealed. The first two offerings were priced at $29 per share, and the second two at $30.50 per share.
In early August, the U.S. Treasury had reduced its stake in AIG to about 53 percent from 61 percent through the sale of nearly $5.75 billion worth of shares at $30.50 per share. Earlier, the Treasury slashed its stake in AIG to 61 percent in March from the then holding of 77 percent.
In what is an election year, the Obama administration is looking to exit its largest bailout provided during the economic downturn in late 2008. However, the federal government continues to hold large stakes in reportedly more than 700 banks and corporations, including General Motors Co. (GM) and Ally Financial, Inc. (a former financial arm of GM).
The Treasury could be looking to unload its remaining stake in AIG by the end of 2012, and AIG executives have also reportedly revealed that it expects the government to be out of AIG by 2013.
AIG has been in the process of shedding its most toxic assets and spinning off some subsidiaries to repay bailout loans it received from the federal government during the 2008 financial crisis. A total aid of $182 billion was provided following losses caused by housing-linked assets. AIG has also returned to profit in the past two years.
Long back, AIG had stated that it would sell all its businesses, except the U.S. property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations, in order to raise money to repay the bail-out money.
AIG almost collapsed in September 2008 after rating downgrades forced the company to post collateral on credit default swaps, which banks bought from the insurer. AIG was subsequently bailed out by the U.S. government.
AIG closed Friday's regular trading session at $33.99, down $0.23 or 0.67% on a volume of 26.60 million shares. The stock has traded in a range of $19.18 to $35.36 in the past 52-weeks.
by RTT Staff Writer
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