(Bloomberg) -- American International Group Inc., the bailed-out U.S. insurer, is raising as much as $2 billion selling a stake in AIA Group Ltd. as Chief Executive Officer Robert Benmosche accumulates funds to repurchase his company’s stock from the Treasury Department.

AIG is offering about 600 million AIA shares at HK$25.75 to HK$26.75, according to a term sheet obtained by Bloomberg News. AIG plans to spend as much $5 billion buying back its shares, it said in a statement released via Business Wire.

Benmosche, 68, is raising funds to buy back stock of New York-based AIG from the U.S., which still has a stake of 53 percent, about four years after the government rescue. Treasury has trimmed its holding from 92 percent through four share sales as of Aug. 22, and a lockup period on the next U.S. offering expired Sept. 2.

“If they can free up more cash they’ll buy back more stock from the U.S. taxpayer,” Cliff Gallant, an analyst at KBW Inc., said before the sale was announced. “Everybody benefits by having the government exit and for AIG to truly break free from that, I think is a positive for the shareholders.”

AIG declined 1.5 percent to $34.30 at 8:14 a.m. in early trading in New York. The shares gained 50 percent this year through yesterday’s close.

It is the third offering of shares in the Hong Kong-based insurer by AIG, which will leave the insurer with a 13.6 percent stake.


Selling Down

AIG had cut its AIA stake to 33 percent in a 2010 offering that raised about $20.5 billion and priced AIA shares at HK$19.68. AIG sold $6 billion more in March, with shares priced at HK$27.15. AIA, the third-largest Asia-based insurer by market value, closed 0.6 percent higher at HK$26.30 today.

AIG is offering the shares at a 2.1 percent discount to a 1.7 percent premium to AIA’s closing price of HK$26.30 today, according to the term sheet. It is restricted from selling the remaining AIA shares in the next 90 days.

“Investors are willing to buy a small lot” given the current market conditions, said Kenneth Yue, a Hong Kong-based analyst at CCB International Securities Ltd., of AIG’s decision not to sell all remaining shares in one go.

A larger share sale will probably involve a higher discount, affecting AIA’s share price, said Yue in a phone interview. AIA shares fell 8.4 percent the day after AIG sold 1.72 billion shares at HK $27.15 on March 5.


‘Minimal Discount’

“AIG in a way is trying to sell the stake with a minimal discount and support AIA’s share price,” said Yue.

The price range may indicate the share sale is in good demand from investors, said Yue, who has a neutral rating on AIA, with a price target of HK$29.

Yue said he expected AIG to sell some of its remaining AIA shares after the 90-day lockup and reduce its holding below 5 percent in about 180 days.

AIA has repositioned itself as an independent insurer after losing share of new business during the global financial crisis because of ties to AIG, which would have collapsed without government aid. The Hong Kong-based insurer has delivered eight straight quarters of growth in the value of new business under CEO Mark Tucker, who was hired by Benmosche in July 2010.

“Mark Tucker has done an outstanding job,” Benmosche said on an Aug. 3 conference call. “We’re looking for the right time and the right price to monetize our ownership of AIA.”


Rivals Expand

The bailout forced AIG to scale back in Asia, while rivals including MetLife Inc. and Prudential Financial Inc. expanded on the continent by buying units from Benmosche. AIA operates in markets including Hong Kong, Thailand, China, Singapore, Malaysia and South Korea. Maurice “Hank” Greenberg, who had built AIG during his four-decade leadership of the firm until 2005, called AIA one of his company’s “crown jewels.”

The sale of AIA shares and the wind-down of two bailout vehicles holding mortgage debt will reduce volatility in AIG’s earnings, which had swung with fluctuations in the market value of the assets. Benmosche is seeking to focus on global property- casualty coverage and U.S. life insurance and retirement products.

Benmosche turned to public offerings to divest AIA after the collapse in 2010 of a deal to sell the insurer to Prudential Plc for about $35.5 billion. The London-based company sought a lower price under pressure from its shareholders, and AIG’s board rejected a reduced bid that Benmosche supported, people familiar with the discussions have said. The clash led to the departure of AIG Chairman Harvey Golub in 2010.

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