American International Group Inc. is increasingly likely to pursue an initial public offering for its plane-leasing business after a deal to sell the unit stalled, according to analysts who follow the insurer.
“The fallback is a public offering,” said Charles Sebaski, an analyst at BMO Capital Markets. “I don’t think there’s a likely other acquirer out there for this asset.”
A Chinese buyer group has a deadline of today to complete the $4.2 billion purchase of at least 80 percent of AIG’s International Lease Finance Corp., and the insurer hasn’t received the funds, according to a person with knowledge of the matter. Discussions are continuing and the deadline may be extended, said the person, who asked not to be identified because the talks are private.
AIG Chief Executive Officer Robert Benmosche, who repaid a U.S. bailout last year, has been seeking to get rid of ILFC to reduce debt and simplify the company. Proceeds from the disposal could help the insurer reinstate a dividend or buy back shares.
The insurer updated the registration statement for an initial public offering of Los Angeles-based ILFC on June 21, after shelving the IPO plan when it announced the deal with Chinese buyers in December. The deadline was pushed back to today after being extended to June 14 from May 15.
The group that agreed to buy the unit is led by New China Trust Co. Chairman Weng Xianding and includes China Aviation Industrial Fund and P3 Investments Ltd. A spokesman for the investors declined to comment as did AIG’s Matt Gallagher, and ILFC’s Paul Thibeau. Dow Jones reported earlier today that the buyer group would miss today’s deadline.
Airline Prospects
“AIG made it pretty clear that if they didn’t get the money or the deal couldn’t be completed that they would potentially go and do an IPO or look for other buyers,” Gloria Vogel, an analyst at Drexel Hamilton LLC, said by phone. “Airlines are doing better, there’s been much demand for aircraft. An IPO is not the worst option anymore.”
AIG slipped 0.3 percent to $45.75 at 1:52 p.m. in New York.
Benmosche has said selling ILFC is part of the insurer’s plan to reduce debt, which he considers essential before resuming share repurchases. The Los Angeles-based unit had about $24.1 billion in borrowing as of March 31.
“If ILFC doesn’t happen, you end up pushing out your view on when capital returns are likely,” said Josh Stirling, an analyst at Sanford C. Bernstein & Co. “They’ve been trying to sell it for four years, and where they ended up with was buyers that weren’t able to close the deal.”
He said AIG should consider spinning off ILFC to the insurer’s shareholders to more quickly dispose of the unit.
AIG acquired ILFC in 1990 for $1.16 billion from founder Steven Udvar-Hazy, data compiled by Bloomberg show. Under AIG’s ownership, the unit had been able to borrow money at lower rates, an advantage that evaporated when the insurer was hobbled by losses tied to subprime mortgages.
Editors: Dan Kraut, Dan Reichl