Going ahead with its asset disposal strategy to repay the U.S. government bailout loan, yesterday American International Group Inc. (AIG) announced its decision to sell the company’s rail car leasing unit, AIG Rail Services Inc. to an affiliate of Perella Weinberg Partners for about $600 million. The deal is expected to be culminated by the end of June this year.
Perella Weinberg is an asset management and corporate advisory firm with sound experience in rail leasing operations. Accordingly, the firm established a new unit, Flagship Rail Services LLC, to operate over 10,000 rail car lease operations, post the culmination of the deal.
The company had put this rail unit on sale around November last year after it completed the successful IPO of AIG’s AIA Group Ltd. while also disposing of other assets such as ALICO to MetLife Inc. (MET), through the second half of 2010. Both the transactions helped the company earn about $37 billion.
Furthermore, in January this year, AIG accepted the bid from Ruen Chen Investment Holding Co. Ltd. (Ruen Chen) in order to divest its 97.57% stake in its Nan Shan unit in Taiwan, for a cash deal of $2.16 billion. However, the deal is subject to regulatory approvals. It was expected to be sealed in a couple of months, but has now been extended.
AIG also offloaded its Japan-based AIG Star and AIG Edison to Prudential Financial Inc. (PRU) and AGF to Fortress Investment Group LLC (FIG), in February this year. These deals were set for an agreed price of $4.8 billion. Management is also eying an IPO for its airplanes leasing unit, ILFC, apart from other growth alternatives to improve and stabilize this unit.
In an effort to repay the bailout money, AIG has been working for the past several quarters to sell its non-core businesses. The financial crisis in 2008 crippled the company’s capital structure, post which AIG disposed off over 33 of its redundant assets and raised about $57 billion through stock and debt securities.
Last month, AIG repaid about $7 billion to the Treasury. As of April 2011, AIG owes less than $60 billion to the government compared to $182.3 billion taken in 2008.
The decision of asset disposals is a part of the company’s rigorous restructuring program, critical for re-establishing its capital position and improving its operating leverage by focusing on its core global life and property-casualty insurance businesses.
Along with asset disposals, AIG has been vigorously seeking freedom from the government bailout loan. It has also entered the recapitalization program whereby the various ownership interests of the U.S. government will be converted to common stock, in order to hasten the process. As a result of this program, the Treasury now holds 92% of AIG common stock, which it shall start selling from May onwards.
However, the risk of execution continues to hover considering the company’s credit default swap portfolio and administrative disturbances within AIG. Several non-recurring charges, associated with the intense restructuring, are also expected to mar the desired upside in the upcoming quarters.
AMER INTL GRP (AIG): Free Stock Analysis Report
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METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
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