March 5th, 2012
02:23 PM GMT
Hong Kong, China (CNN) – U.S. insurance giant, American International Group, used to be the world’s largest insurer - until its spectacular fall in the 2008 financial crisis.
Now, AIG is inching back out of the darkness after its $180 billion bailout, the largest in American corporate history.
But the revival has come at a cost. AIG has sold bits of itself, including one of its most valuable possessions in Asia – the region’s third largest insurer, American International Assurance.
AIA was once AIG’s Asian insurance gem. Now, AIG is merely a minority shareholder, and its grip is set to slip even more.
On Sunday, the New York-based insurer said it would sell 1.7 billion shares in its AIA holdings. The company’s goal: To make about $6 billion from as-yet-unidentified institutional investors and fund managers.
In a website statement, AIG explained further in a bit of legalese: “AIG expects to use the net proceeds to reduce the balance due to the U.S. Department of the Treasury...in the special purpose vehicle through which AIG holds AIA shares."
The balance on that “special purpose vehicle” is about $8.5 billion. That means the $6 billion AIG hopes to make from its AIA share sale would put a much-needed dent in its debt.
AIG has come a long way in its repayment plan since 2008, when its bailout effectively put it under U.S. government control.
In 2010, AIG sold about two thirds of its stake in AIA to help pay down its bailout debt. If this week’s share sale goes through, AIG’s remaining stake will drop from a third to less than 15%.
AIG is offloading the shares now to benefit from Hong Kong-based AIA’s good performance.
Over the past year, AIG has lost nearly 20% of its value as its bailout debt weighed on the company. By comparison, AIA’s share price jumped nearly 50% in the past seven months, from its all time low last October. Ten days ago, AIA announced a record 40% increase in new business growth, which is worth more than $930 million.
AIG is moving to capture returns on its Asian investment. Yet it still owes some $50 billion to Washington. Time will tell if the strategy to go from an insurance Goliath to a little David will work.
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