A Chinese group agreed to buy 80.1 percent of American International Group Inc. (AIG)’s plane-leasing unit for $4.23 billion in the nation’s largest acquisition of a U.S. company.
The International Lease Finance Corp. acquirers, led by
New China Trust Co. Chairman Weng Xianding, have an option to buy
another 9.9 percent, New York-based AIG said today in a statement. The
transaction, which values ILFC at $5.3 billion, passes China Investment Corp.’s
$3 billion purchase of a stake in Blackstone Group LP (BX) in 2007 as
the biggest Chinese-U.S. deal.
The acquisition gives the group control of the world’s
second-largest aircraft lessor as rising travel in China and Asia spurs demand
for planes. AIG, which counts the U.S. government as its largest investor, is
selling the Los Angeles- based unit as Chief Executive Officer Robert
Benmosche focuses on insurance operations and works to reduce debt.
“This ILFC deal squarely places the leasing business
where future growth will be,” said Will Horton, a Hong Kong-based analyst at
CAPA Centre for Aviation. “There are large opportunities in China, but also in
countries like Indonesia andMalaysia.”
China and Indonesia will account for about 40 percent of
all aircraft deliveries through 2026, with the two countries taking more than
500 planes each, he said.
AIG will record a $4.4 billion non-operating loss, which
includes a $1.8 billion non-cash charge tied to tax assets, when the
transaction meets criteria for “held for sale” accounting treatment, according
to the statement. The deal is subject to approval by U.S. and Chinese
regulators.
Share Decline
The insurer dropped 1.3 percent to $33.70 at 11:17 a.m.
in New York. AIG said late Dec. 7 that superstorm Sandy will cost the company
about $1.3 billion after taxes and reinsurance, the highest sum disclosed by a
U.S. insurer. The company has gained 47 percent this year through Dec. 7,
compared with a 13 percent advance for the Standard & Poor’s 500 Index.
The group investing in ILFC includes New China Trust,
China Aviation Industrial Fund and P3 Investments Ltd., AIG said. New
China Life Insurance Co. (1336)and a unit of ICBC International Holdings Ltd.,
the investment banking arm of the world’s biggest bank, may also join once the
deal is approved by regulators and the option to buy a further stake is
exercised, it said.
ILFC will continue to be run by CEO Henri Courpron and
President Frederick S. Cromer, according to the statement. It will remain as a
U.S. corporation and be registered with the Securities and Exchange Commission.
A new board, which will include Benmosche, will be appointed following the completion
of the transaction. The deal is expected to close in the second quarter of next
year, AIG said.
AIG’s Clarity
A deal would be “credit positive” for both AIG and ILFC,
Moody’s Investors Service Inc. analysts Mark Wasden and Bruce Ballentine said
in a weekly report. “AIG would shed a non-core operation with significant debt,
while ILFC would benefit from clarity regarding its future ownership and
potentially greater access to clients and funding sources in growing Asian
markets.”
ILFC’s new owners will be poised to expand in China and
other emerging markets in Asia, Latin America, the Middle East and
Eastern Europe, Benmosche, 68, said in a memo to staff. The sale will help AIG
narrow its focus on global property-casualty coverage and U.S. life insurance.
“AIG is a different company today than it was four years
ago,” Benmosche said in a memo staff. “We’re leaner, more focused.”
New Staff
ILFC had stockholders’ equity of $7.9 billion at the end
of the third quarter, the company said last month in a filing. The unit employs
about 560 people, with more than 450 in the U.S., where it plans to hire more
staff to replace AIG-supported operations, according to today’s statement.
The lessor owns or manages more than 1,000 planes with
another 229 on order. It is also the largest aircraft lessor in China, with a
30 percent market share and more than 175 aircraft leased to 16 airlines in the
Greater China region, according to the company. Globally, it trailsGeneral
Electric Co. (GE)’s GE Capital Aviation Services.
“This transaction allows ILFC to continue to serve its
worldwide partners in the aviation industry with world-class service while
accelerating its growth in important markets, including Asia,” Weng said in the
statement.
Asian Deals
Weng has been chairman of closely held investment company
New China Trust since 2008, according to a biography on
the website of Partnership for New York City. Prior to that, he
helped set up and then ran the Chinese government’s first professional
securities unit, before working for the National Development and Reform
Commission and the Chinese securities regulator, it said. In 1993, he was named
as founding CEO and chairman of China New Industries Investment Co.
Cash-rich Asian investors are expanding plane leasing as
European banks cut lending amid a regional debt crisis. A group led
by Sumitomo Mitsui Financial Group Inc. (8316) this year bought Royal
Bank of Scotland Group Plc’s leasing unit for about $7.3
billion. Industrial & Commercial Bank of China (601398) Ltd.’s
leasing arm signed an order for 50 Airbus SAS A320s in August. Bank of China
Ltd. bought Singapore Aircraft Leasing Enterprise for $965 million in December
2006.
AIG filed for an initial public offering of ILFC last
year, and said as recently as last month that an initial public offering may
take place in 2013. The insurer had considered selling the lessor in 2009 to
raise funds to repay a $182.3 billion U.S. bailout that saved the firm from
collapsing amid the financial crisis. The company sold more than $60 billion in
assets, including Asian insurers, a U.S. consumer lender, and its Japanese
headquarters, to help repay the rescue.
Low Rates
AIG acquired ILFC in 1990 for $1.16 billion, data
compiled by Bloomberg show. Under AIG’s ownership, the plane-leasing unit originally
benefited from the ability to borrow money at low rates, an advantage that
evaporated when the insurer was hobbled by losses tied to subprime mortgages.
Citigroup Inc. (C), JPMorgan Chase & Co.
(JPM) and Morgan Stanley (MS) are advising AIG on the
transaction, with New York-based Citigroup providing a fairness opinion to the
insurer, and Credit Suisse Group AG is representing the investor group, Jon
Diat, an AIG spokesman, said in an e-mail. Debevoise & Plimpton LLP is
providing AIG with legal advice, and Simpson Thacher & Bartlett LLP is
doing so for the investors.
**To contact the reporters on this story: Zachary Tracer
in New York at ztracer1@bloomberg.net; Cathy Chan in Hong Kong
at kchan14@bloomberg.net