American International Group Inc. (NYSE: AIG) tagged Hong Kong investors in its Asian unit with a nasty surprise, saying it will sell a roughly $6 billion stake in the unit at a discount -- a move that will hurt current stockholders in the concern.
AIG, which disclosed its plans Sunday evening, is pursuing the action to raise $6 billion, a small amount of the $182.3 billion bailout it received from the U.S. government in 2008 and has yet to pay back.
A term sheet obtained by Reuters Sunday showed the company was planning to sell 1.7 billion shares, about 14 percent of its AIA unit, to institutional investors. That would still leave AIG with roughly an 18 percent interest in the company. AIG had sold off more than two-thirds of its stake in AIA in a public equity in late 2010.
The price per share, according to the term sheet, would be between HK$27.15 and HK$27.50 ($3.50 to $3.54). That represents a discount of 5.8 percent to 7 percent on AIA shares closing price of HK$29.20 last Friday. Trading in the shares was suspended at the Hong Kong Stock Exchange following the announcement.
The wider Hang Seng index of Hong Kong equities declined 1.38 percent at close Monday, dragged down by the loss in liquidity from seeing trading in a major company halted.
AIG is expected to use the amount raised from the disposal of its equity stake in AIA, alongside other asset sales, to pay back the U.S. government some $8.4 billion this year. That would still leave Uncle Sam over $42 billion in the red from its emergency loans to AIG. The government, which controls 77 percent of AIG, will seek to obtain much of the amount due by selling its stock holdings in AIG.