AIG Plans to Sell Japanese Units – Analyst Blog

The troubled insurer, American International Group (AIG), is planning to sell its two Japanese life insurance units – AIG Star Life Insurance Co. and AIG Edison Life Insurance Co. – The Wall Street Journal reported on Thursday. The combined sale could fetch proceeds of about $5 billion.

 

AIG had been mulling over the sales of its overseas businesses to pay back the bailout money to the federal reserve, which rescued AIG from collapsing in 2008. The planned divestitures will help AIG partly repay the $182.3 billion bailout money it had received from the Treasury. Repayment of the bailout money will in turn liberate the company from pay restrictions.

 

AIG had previously thought of vending these two Japanese life insurance units, but decided to hold back in an effort to stabilize their business. With improving performance of these two subsidiaries and a reviving economy, the company is mulling the sale again, on the belief that these units can now fetch a better price.

 

AIG has already made significant progress toward its plan to divest key assets and raise funds in order to pay back the federal loans. AIG sold its American Life Insurance Co. to MetLife Inc. (MET) for $15.5 billion in March 2010.

 

AIG also plans to divest its Taiwanese unit, Nan Shan Life Insurance Co. Ltd., since the global economic breakdown created an unprofitable investment environment. The $2.15 billion deal to sell its Taiwan unit is facing challenges from the Taiwanese government, which strictly prohibits Chinese investment in the country due to political reasons. However, the company is hopeful of getting the regulatory approval following the lapse of the share swap contract between the Hong Kong-led consortium and Chinatrust Financial Holding on June 25.

 

The company was also in talks with Prudenial plc (PUK) to sell its Asian life-insurance unit, AIA Group. The deal, however, collapsed, as AIG was not ready to settle for the lower value offered by Prudential, believing that its Asian unit should merit a higher price. The company might get back to its earlier plan of a public offering in Asia to divest its Asian unit.

 

Based on the company’s continued focus on strengthening its overall business, rigorous efforts to pay back the bailout money, manage costs, duly recover the value of its investments allied with a recovering economic environment, we maintain an Outperform rating on the company. The quantitative Zacks Rank for AIG is currently #1 (Strong Buy), indicating the stock may likely face an upward pressure on the shares over the near term.