A sign for American Life Insurance Co. (Alico) hangs outside the AIG building in Tokyo.

American International Group Inc. paved the way for two units to sell stock by agreeing to give preferred shares to the Federal Reserve Bank of New York and reduce its debt to the central bank by US$25 billion.

The New York Fed, one of the government’s main supervisors of AIG, will receive $16 billion of preferred shares in the AIA unit, and a $9 billion stake in Alico, AIG said.

AIG has an outstanding balance of $40 billion on its credit facility from the New York Fed. The insurer first announced the transfer of the units to the government in March, after failing to sell them to corporate buyers amid the global recession. Alico and AIA are AIG’s biggest non-US life insurance units.

“AIG needs to take whatever steps are necessary to pay back the taxpayers as soon as possible, and if that means parting with a crown jewel at a less-than-desirable price, then so be it,” said David Havens, managing director at investment bank Hexagon Securities LLC in New York. “This helps them move forward.”

AIG said the transfer is expected to be completed in the second half of the year. The company then plans to sell shares of AIA and Alico in initial public offerings “depending on market conditions,” it said in the statement.

‘Major step’

The transaction “represents a major step toward repaying taxpayers and preserving the value of AIA and Alico,” Chief Executive Officer Edward Liddy said in the statement.

AIA operates in China, India, South Korea, Australia, Singapore, Malaysia, Thailand, Vietnam and Indonesia. The unit has more than 20 million customers and more than $60 billion of assets.

Alico operates in more than 50 countries, including parts of Europe, Latin America, the Caribbean, the Middle East and Japan. Japan is Alico’s biggest market.

AIG plans to transfer its businesses in the Philippines and the Alico operations in Taiwan into AIA, the company said in a statement on May 18.

Source: Bloomberg