AIG has decided to retain one of its crown jewels in Southeast Asia, the Philippine American Life and General Insurance Co (Philamlife), at least for now.

With this, the bidding for Philamlife assets alone may no longer push through, sources familiar with the transactions told ABS-CBN News.

ABS-CBN News Channel (ANC) tried to get a reaction from Philamlife President Jose Cuisia, but Cuisia said he can't confirm nor deny the news.

"I can't confirm nor deny because I'm not allowed to do so under the directives of AIG and the Federal Reserve Bank of New York," he said.

At least four groups, which include the Philippines' biggest capitalists and their foreign partners, are reported to have submitted bids for Philamlife before the February 25 deadline.

Low offers

Sources say AIG has decided to hold off the sale not just of Philamlife, but its entire Asian businesses, as the offers it received fell short of what it considers to be fair market value.

Previously, AIG was reported to be expecting about $2 billion from the sale of Philamlife. AIG was looking at fetching $10 to 20 billion from the sale of its insurance operations in Asia.

AIG had hoped to sell some of its businesses worldwide in order to repay loans from the US government. Since AIG's announcement of its financial predicament in September 2008, the US Treasury extended $85 billion in emergency loans that, almost five months after, have ballooned to around $150 billion.

AIG's financial situation only appears to be getting worse. AIG incurred losses of up to $62 billion In the last quarter of 2008 and sought a third round of US government aid. This prompted the US regulators to further tweak bailout packages for financial institutions deemed too big to fail as the economy and markets worsen.

With the US government converting or has the option to convert its loans to equity in AIG, previous asset sale plans of AIG now has to get the nod of the US government.

Last weekend, AIG officials in Hongkong overseeing the bids for Asian assets were quoted saying they have become more deliberate on the value and importance of the Asian assets

A Reuters report last weekend said that smaller auctions for various Asian units are off the table. It was the first concrete indication that the sale of individual units, like Philamlife, is being reconsidered.

The report, however, also noted that while AIG was hesitant to give up control of the Asian insurance operations early on, it is not the case now, Reuters sources said.

Fund raising ptions

With the repayment of the loans to the US government as nagging priority, another report, citing AIG sources, said company officials, together with those from the US Treasury and Federal Reserve, announced a broad set of actions to improve AIG's capital structure.

Fund raising schemes to pay off the loans now include not just the sale of certain businesses, but also holding some "for later divestiture." Philamlife's fate is reported to be part of the latter.

The report cited Mark Wilson, president of AIG's American International Assurance Company, Ltd. (AIA), who said that "AIG has decided to retain Philam Life, together with the operations of AIA."

Wilson said, "We will continue to consider all strategic alternatives for AIA and evaluate expressions of interest from qualified parties with access to capital," according to the report.

AIA, which focuses on insurance operations in Asia and the Pacific, and American Life Insurance Company (ALICO), which operates in developed markets outside the US, will proceed with "a review of their divestiture options." This option may include a public offering of shares, depending on market conditions, the report said.

AIG is reportedly considering the option of creating special purpose vehicles, which will be the capitalized with AIG's equity in AIA and ALICO. The US government would be paid with preferred interests in these special purpose vehicles. The valuation of the preferred shares would be based on a percentage of the fair market value of AIA and ALICO acceptable to the US government.

In effect, the US government is betting that the foreign insurance operations of AIG will recover, thus would be able to settle its loans. Meantime, AIG would be allowed to hold on to these assets, while reducing its debts and the interest costs.

The report also quoted Edward M. Liddy, AIG's chairman and chief executive officer explaining that "Given the importance of AIA and ALICO to repaying our obligation to the US government, we think this structure is the optimal solution to maintain the value of these businesses and best position them to enhance their franchises." - With a report from ANC, Reuters