AIG to Vend Rail Unit, Fitch Avers Debt - Analyst Blog

Going ahead with its asset disposal strategy to repay the U.S. government bailout loan, yesterday, American International Group Inc. (AIG) announced its intention to vend its rail-car leasing wing, AIG Rail Service Inc, according to Wall Street Journal.  While the price of sale offering and other terms remain undisclosed, as of now, the offer has been extended only to private equity firms who do not have any prior experience in this business.

Commenced in 2005, AIG Rail Service now operates with a book value of about $660 million. AIG has appointed Bank of America Corp. (BAC) to take care of the deal. The decision to sell is part of the company's rigorous restructuring program.

Nan Shan, Taiwan Update

AIG is also gearing up to divest its Nan Shan life insurance unit in Taiwan in a couple of months for about $2 billion. On Friday, Reuters (through Commercial Times) reported that AIG has called upon four Taiwan groups to inspect the credentials of Nan Shan from today onwards. The interested buyers include Cathay Financial Holding, Fubon Financial Holding, Chinatrust Financial Holding and a syndicate led by Samuel Yin, a Taiwan businessman.

On the other hand, AIG is also negotiating with Taiwan's Investment Commission and other regulatory authorities to get an acceptance on the sale proposal. The regulatory authorities had rejected the interested parties in August 2010, including Primus Financial, Fubon Financial and battery maker, China Strategic, thereby further delaying the sell off. Their apprehension is based on the aspiring companies' inadequate experience to take over such a high profile business, initiating skepticism on their efficiency.

AIG's projection last week of disposing Nan Shan within a couple of months – quite prior to the end of 2011 forecast earlier – along with the proceedings already in motion reflect that the company is on the threshold of finalizing a deal for the unit.

Further, after the successful IPO of AIG's AIA, disposition of other assets such as ALICO to MetLife Inc. (MET), Japan-based AIG Star and AIG Edison to Prudential Financial Inc. (PRU) and AGF to Fortress Investment Group LLC (FIG), management is also eyeing an IPO for its airplanes leasing unit, ILFC, apart from other growth alternatives to improve and stabilize this unit.

Rating Update

Meanwhile, Fitch Ratings assigned a long-term issuer default rating of “BBB” on AIG's recently issued unsecured senior debt securities, while maintaining the same rating on its existing senior debt. However, Fitch upgraded AIG's hybrid securities to “BB-” from “B”, thereby asserting the company's recovery efforts as effective and financially flexible. The outlook for all of AIG's debt securities remains stable, although a nominal adverse impact on the financial leverage is expected.

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.

 
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