AIG’s Hopes for Sale of Asian Life Unit AIA Rest With 3 Bidders

By | February 25, 2009

Three potential bidders remain interested in the sale of a large stake in American International Group’s $20 billion Asian life insurance unit, people close to the matter said on Wednesday, as the auction heads into its final week.

But hopes for the auction are fading fast, as economic conditions have worsened since the sale began, causing several major suitors to drop out.

UK insurer Prudential Plc, Canadian insurer Manulife and Singapore sovereign wealth fund Temasek Holdings are still considering offers for the roughly $20 billion unit, the sources said, although no formal bids have been submitted.

Final bids are due on Friday, said the sources, who declined to be identified because they were not authorised to speak on the record about the process.

Hong Kong-based spokespeople for Manulife and Prudential did not return calls seeking comment. A Temasek spokeswoman said the company did not comment on market speculation.

Plans to sell up to 49 percent of AIA, considered AIG’s crown jewel in Asia, were put in place last fall shortly after the U.S. government saved AIG from bankruptcy with a rescue that has since ballooned to around $150 billion.

Prudential Plc has engaged Credit Suisse to advise it on the AIA process, while Manulife has hired UBS AG, said the sources.

Both UBS and Credit Suisse declined to comment. It was not clear who is advising Temasek, if in fact they have engaged a bank.

PAYBACK TIME

AIG has embarked on a series of asset sales across the globe to help pay back the U.S. government. In addition to auctioning off part of AIA, AIG is selling stakes in insurance divisions in Japan, the Philippines and other units in Asia.

The sale of AIG’s American Life Insurance Co, a unit that generates more than half its revenue from Japan, could fetch more than $10 billion. Bids for all AIG units under auction are due on Friday, sources say.

Like its other assets, the auction of Hong Kong-based AIA has been hampered by AIG’s worsening financial state and a drop in markets globally, limiting the number of potential buyers.

Bank of China dropped out of the process last month, dealing a big blow to the auction as AIG hoped the cash-rich bank would submit an attractive offer and become a front-runner, according to sources.

Global banking group HSBC considered making a bid but decided not to, the sources said.

Like any auction, deadlines could move, new bidders could emerge, or the auction could be pulled due to lack of offers or low valuations

“We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG’s financial challenges,” said AIG’s Hong Kong-based spokeswoman Patricia Chua. “We will provide a complete update when we report financial results in the near future.”

AIG plans to ask the U.S. government for more aid and is bracing for a fourth-quarter loss of roughly $60 billion, the largest quarterly loss in corporate history.

Reuters reported on Tuesday that AIG was willing to give up control of the prized Asian division, known formally as American International Assurance Company Ltd, to any buyer willing to pay the right price.

AIG hoped it could generate a relatively quick chunk of cash by putting an AIA stake on the block, but the process has fallen victim to several factors, including the drop in Asia’s economy since late last year.

Still, sources close to the matter say that the auction is not dead yet, with all eyes on Friday’s bidding deadline.

If the auction does not pan out, AIG would consider an IPO of AIA, the sources said.

FINANCING ISSUES

Citigroup and Goldman Sachs are advising AIG on its Asia asset sales. Both declined to comment on Wednesday.

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.

“AIA is very well managed and it has dominant market share in 10 of the 12 markets it’s in,” said a source close to the process, who estimated AIA’s average annual operating profit at around $2 billion.

One of the remaining questions surrounding the auction is how a bidder is going to pay for a more than $10 billion purchase. Most major banks have pulled back on lending. Prudential and Manulife’s market capitalisations are around $10 billion and $16 billion, respectively.

Money could be raised outside of bank loans, but in this market, a buyer faces major challenges for a deal this size.

As a sovereign wealth fund, however, Temasek faces less financing hurdles.

(Additional reporting by Saeed Azhar in SINGAPORE; Editing by Lincoln Feast)

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