AIG Asset Sale Gets Little Traction

NEW YORK (Reuters) – It was supposed to be the biggest insurance yard sale ever.

The problem is, people are looking but not buying.

Insurer American International Group Inc’s asset sales are taking longer than hoped as credit for deals is tough to come by and potential buyers wait for bargain prices and sometimes grapple with their own problems.

Last month, the U.S. government extended AIG, once the world’s largest insurer, $85 billion in bailout financing and later raised the loan to $123 billion.

The initial credit line has a two-year term carrying a steep interest rate. The company also had to grant the government warrants for a nearly 80 percent stake, putting pressure on AIG to sell assets quickly.

AIG plans to keep its U.S. property and casualty, foreign general insurance businesses, and an ownership interest in its foreign life operations, but sell the remainder.

It had about 240 units at the end of 2007 spread among its general insurance, life insurance and retirement services, financial services and asset management divisions.

These range from giant aircraft leasing firm International Lease Finance Corp to a 60 percent stake in reinsurer Transatlantic Holdings Inc.

But so far the company has announced just one deal: selling its stake in the London City Airport for an undisclosed price.

“No one has really stepped up to say: ‘Here’s X dollars of cash. Let’s get the deal done next week’,” said a financial services banker representing a potential buyer. “Everyone is just sort of lining up, saying: ‘Yes we are interested.’

“But it’s a chicken and egg situation, because if you wait long enough, a la Barclays-Lehman, you may be able to get this cheaper,” said the banker, who requested anonymity because of the sensitive nature of the sale process.

Barclays Plc bought some assets from Lehman Brothers Holdings Inc at a fire sale price only after the storied investment bank collapsed into bankruptcy.

An AIG spokesman declined to comment.

Chief Executive Edward Liddy said on October 3 that the company had several potential buyers interested in its assets, but declined to say how quickly he expects any deals to be signed.

“I want to balance speed with value,” Liddy said.


The credit crisis, which led to AIG’s dramatic downfall, is also complicating sales by making it difficult for potential buyers to find financing, experts said.

“They can’t really look to the banks to be ready lenders like they used to be,” said Robert Ellis, a senior vice president at financial research firm Celent.

Moreover, several insurance companies that could be interested in some of AIG’s businesses for strategic reasons are dealing with problems of their own.

On Thursday, Fitch Ratings revised the outlook for 12 insurance and reinsurance sectors globally to negative from stable, citing increasing pressure on balance sheets and investment portfolios.


Still, many of AIG’s assets could eventually lure bidders including billionaire investor Warren Buffett, who has said his Berkshire Hathaway Inc insurance and investment company would consider buying some units.

AIG said it received offers for Philippine American Life and General Insurance Co — that country’s biggest insurer — from around 10 local and foreign investors, including private equity.

Earlier this month Liddy said AIG was in advanced talks with one potential buyer for part of its U.S. personal lines unit.

Liddy has said he does not expect the divestitures to turn into a fire sale, but experts said AIG may have to sell some assets cheaper than they would fetch in normal times.

“Even at lower prices, it is difficult with the (credit) markets the way they are,” said William Bates, a mergers partner at law firm King & Spalding. “It’s a good thing they have two years to do it.”

By Paritosh Bansal
(Editing by Andre Grenon)