American International Group and the U.S. Treasury said Wednesday they will sell just under $9 billion in AIG stock, suggesting the government’s exit from its crisis-era investment will be more difficult than originally thought.

The $9 billion figure is less than half of what had been contemplated earlier this year. Based on the government’s $28.72 break-even point and the government’s total shareholding, the Treasury would have to raise just over $47.5 billion in total from AIG share sales to break even.

The U.S. government turned a $12 billion profit on its investment in Citigroup Inc., but took a loss on its first sale of shares in automaker General Motors Co. The government is expected to begin selling off its stake in Ally Financial later this year.

When AIG was rescued in September 2008, few expected it would even exist today. The company received $182 billion in bailouts and managed to restructure while preserving two core insurance businesses.

Following its restructuring, it looked like Treasury could turn a roughly $27 billion profit on its AIG investment. But the company’s shares in the past four months have lost more than a third of their value, sharply cutting into that profit.

The prospective offering of 100 million shares by the company and 200 million shares by the Treasury has been pressured by the slide in AIG’s stock. AIG shares were up 6 percent at $31.39 in late morning on the New York Stock Exchange.

Taking a loss on AIG would be a black eye for the Treasury, but the government is under pressure to exit its crisis-era investments in private companies and raise as much money as it can before it runs up against borrowing limits.

A mix of heavy interest from short-sellers betting the shares would fall further, dilution fears for those with long positions and operational questions linked to legacy charges at two AIG units weighed on the shares, driving them from the mid-$40s range to the upper $20s.

AIG said last Friday it needed to raise $3 billion in the offering, which would imply a price of around $30 a share. But one investor said Wednesday the offering was more likely to price at a discount to where the shares are now, a view shared by most sources familiar with the process.

If the stock priced at a 5 percent discount to Tuesday’s close, as has been suggested is possible, the offering would be worth $8.44 billion.

When Wall Street banks offered their services to manage the stock sale in January, there was talk of an offering of more than $20 billion.

The U.S. Treasury also has the option to sell an extra 45 million shares to cover any over-allotments, which would raise the value of the sale to more than $10 billion.

Assuming the Treasury sells only the 200 million shares, the government’s stake in AIG would fall to 77 percent from the current 92 percent.

Shares have closed lower in 31 of the last 42 trading sessions, going back two months, according to Thomson Reuters data.

(Additional reporting by Clare Baldwin; Editing by Derek Caney, Maureen Bavdek, Dave Zimmerman)

 

American International Group will sell 100 million shares and the U.S. Treasury will sell 200 million shares, as the bailed-out insurer begins its return to public control.

The offering, worth about $8.89 billion at Tuesday’s closing prices and without Treasury’s over-allotment option, is much smaller than had been expected. When Wall Street banks offered their services to manage the stock sale in January, there was talk of an offering of more than $20 billion.

In the meantime, AIG shares lost more than one-third of their value. What had been a paper profit for the Treasury of more than $27 billion is now on the verge of being wiped out, with AIG shares less than $1 above the government’s $28.72-a-share break-even point.

AIG did not indicate a price for the offering in the prospectus filed on Wednesday. The U.S. Treasury also has the option to sell an extra 45 million shares to cover any over-allotments, which would raise the value of the sale to about $10.22 billion.

Assuming the Treasury sells only the 200 million shares, the government’s stake in AIG would fall to 77 percent from the current 92 percent.

(Reporting by Ben Berkowitz; Editing by Derek Caney and Maureen Bavdek)