A group led by New China Trust Co. and its chairman Weng Xianding is in talks to buy a controlling stake in American International Group Inc. (AIG:US)’s aircraft-leasing unit, three people with knowledge of the matter said.
The group, which includes China Aviation Industry Fund and Industrial & Commercial Bank of China Ltd., is bidding for International Lease Finance Corp. together with ILFC’s management, the people said, asking not to be identified because the talks are confidential. A deal may value ILFC at about $5.5 billion, one of the people said.
Based on that valuation, a transaction could mark the biggest Chinese acquisition in the U.S., potentially beating China Investment Corp.’s $3 billion purchase of a stake in Blackstone Group LP (BX:US) in 2007, data compiled by Bloomberg show.
“ILFC by its nature is a business that requires financial leverage (CILFC1U5:US), and AIG is a company that would like to reduce its leverage,” said Paul Newsome, an analyst at Sandler O’Neill & Partners LP, who has a buy rating on the insurer. “Getting ILFC off of AIG’s balance sheet, I think would be viewed favorably and make the stock go up.”
AIG rose 2.4 percent to $34.07 at 10:36 a.m. in New York. The company has rallied 47 percent this year.
ILFC, based in Los Angeles, is 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. It had 918 aircraft in its leased fleet as of September, with a book value of $34.9 billion, according to the most recent quarterly report.
Jon Diat, a New York-based spokesman for AIG, declined to comment. Phone calls to Xu Chunqi and Liu Liwei, listed as officials in charge of information disclosure in New China Trust’s 2011 annual report, went unanswered. Officials at China Aviation Industry Fund weren’t reachable. ICBC spokesman Wang Zhenning declined to comment.
AIG, which considered selling ILFC in 2009 as it sought to repay a $182.3 billion government bailout, last year said in an S-1 filing that it planned an initial public offering of the unit. The IPO may take place next year if financial markets stabilize, ILFC Chief Executive Officer Henri Courpron said in early November.
“From just the simple fact that they’ve had this S-1 out there for so long, it suggests that they’ve had trouble finding either a price for an IPO or a buyer who would want to take it off their hands,” Newsome said.
Under terms of the deal being discussed, AIG would retain a minority stake in ILFC, the people said. AIG has narrowed its focus since its near collapse in 2008, divesting more than $60 billion in assets to help repay its bailout. The company has sold non-U.S. life insurers, consumer-finance operations and former headquarters buildings in New York and Tokyo.
AIG CEO Robert Benmosche is concentrating on global property-casualty coverage and U.S. life insurance and retirement products. The company had 57,000 employees (AIG:US) at the end of December, down from 116,000 three years earlier.
AIG acquired ILFC in 1990 for $1.16 billion, data compiled by Bloomberg show. The unit has more than 200 aircraft on firm order, including Boeing Co.’s 787 Dreamliner and Airbus SAS’s new A320neo.
Aircraft delivery financing will rise to $104 billion in 2013 from $95 billion this year, Kostya Zolotusky, managing director at Boeing Capital Markets, the Chicago-based planemaker’s finance arm, said in an interview this week. The figure will rise to $132 billion in 2017, he said. Most lessors trade below book value, indicating aircraft assets may be overvalued, according to JPMorgan Chase & Co.
Airbus, which has an A320 assembly plant in China, won an order for 50 planes from the leasing arm of state-controlled ICBC in August. Bank of China Ltd. and Bank of Communications Co. also have aircraft leasing arms.
A group led by Sumitomo Mitsui Financial Group Inc. (8316) agreed in January to buy Royal Bank of Scotland Group Plc’s aviation division for about $7.3 billion in the world’s biggest acquisition of a leasing business.
New China Trust, 19.5 percent owned by Barclays Plc (BARC), was the country’s 18th biggest trust company by assets under management in 2009, according the latest ranking on China Trustee Association’s website. Net income jumped 43 percent in 2011 to 496 million yuan ($80 million), the company’s website shows.
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