AIG willing to cede control of Asia "jewel": sources

Reuters, Tue Feb 24, 2009 7:55am EST    

HONG KONG/LONDON (Reuters) - American International Group Inc, facing massive losses and seeking fresh funds, may be willing to give up control of its prized Asian division, worth about $20 billion, said sources with direct knowledge of the matter. 

Advisers have signaled the embattled U.S. insurer would consider a bid for a majority stake in American International Assurance Company Ltd (AIA), should buyers submit a compelling offer, the sources said on Tuesday. 

That would mark a significant shift for AIG, which had been determined to cap the stake sale of its Hong Kong-based subsidiary at 49 percent. 

AIG's majority grip on AIA is coming under increasing pressure for several reasons, sources say. 

For starters, AIG's financial situation only appears to be getting worse, a view backed by reports the company faces a massive quarterly loss and is seeking a third round of U.S. government aid. 

The prevailing argument among possible AIA suitors is that any company willing to spend around $10 billion in this brutal environment will want control, said the sources, who did not want to be named because they were not authorized to speak on the record about the process. 

First round bids for AIA are due this week, the sources added. 

UK insurer Prudential Plc is still deciding whether it will submit an offer, one source said, adding that the company would prefer to acquire a majority stake in AIA if it proceeds. 

A Prudential spokesman declined to comment on AIA, but said shareholders would expect it to examine any opportunities that conform to its objectives and financial criteria. 

Other media reports have listed U.S. insurer Prudential Financial, Canadian insurer ManuLife Financial and U.K. bank HSBC as potential suitors. 

Eamonn Flanagan, an analyst who covers Prudential Plc at UK brokerage Shore Capital, said Prudential would be able to finance a $10 billion bid for a significant AIA stake through a combination of cash from strategic investors, equity and debt. Prudential Plc's market capitalization is $10.3 billion. 

"This is a once in a life time opportunity," he said. "AIA is regarded as AIG's crown jewel." 

BALLOONING BAILOUT 

The plans to sell up to 49 percent of AIA were put in place last fall, shortly after the U.S. government saved AIG from bankruptcy in September with a rescue that has since ballooned to around $150 billion. 

Several other insurers across the globe have been mentioned as interested, including Chinese buyers, though doubts remain if they would get support from Beijing. 

Private equity firms and sovereign wealth funds could also team up or partner with a bidder, sources say. 

AIG spokesman David Monfried declined comment on whether bids are due this week for AIA. AIG is working with companies that sometimes have their own issues due to the financial crisis and so deadlines for auctions are often not hard and fast, he said. 

"We are being very deliberate on AIA because of its value and its importance," Monfried said. "We are anxious to see what the market says about the valuation of that company." 

With AIG focused on raising as much as possible from its Asian operations, smaller auctions for various AIA units across the region are off the table, the sources said. 

But the lucrative sale of a majority stake is not. AIG was hesitant to give up control of AIA early on, but not now, according to the sources. 

As in any auction, suitors could drop out or the seller could to decide to cancel or postpone the process. 

Citigroup and Goldman Sachs are advising AIG on its Asia asset sales. 

AIA has more than 2 million policies in force, according to its website, with branches and affiliates in most major countries throughout Asia outside of Japan. It has 3,800 financial services consultants and 800 staff. 

(Additional reporting by Paritosh Bansal in New York; Editing by Lincoln Feast and David Holmes)