Chinese investors buying bulk of AIG unit

Updated: 2012-12-11 11:19

By Zhang Yuwei in New York (China Daily)

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A group of Chinese investors is buying up to 90 percent of American International Group Inc's airplane-leasing business, International Lease Finance Corp. All told, the $5.3 billion deal would be the biggest acquisition of a US company by Chinese investors.

The Chinese consortium - New China Trust Co, China Aviation Industrial Fund and P3 Investments Ltd - agreed to acquire 80 percent of ILFC for $4.23 billion, with an option to acquire an additional 9.9 percent stake, according to New York-based AIG. If the option is chosen, two additional investors would be brought in - New China Life Insurance Co and an investment arm of ICBC International, the wholly owned Hong Kong subsidiary of Industrial & Commercial Bank of China Ltd.

Once finalized, the deal will top China Investment Corp's $3 billion purchase in 2007 of a stake in US private-equity firm Blackstone Group LP. ILFC is the world's biggest lessor of aircraft.

Special: Chinese enterprises in the US

AIG CEO Robert Benmosche, who will keep a seat on the company's board of directors, said the deal creates a "solid and strategic partnership for ILFC". The business was deemed a non-core asset of AIG, though it will retain a 10 percent stake as it continues selling other businesses to help repay US government bailout loans from the fall 2008 financial crisis.

"While ILFC is an extremely strong business platform and AIG will retain a minority stake as a passive investor, the aircraft leasing business is not core to our insurance operations," Benmosche said in a statement released Sunday.

Weng Xianding, chairman of New China Trust Co and leader of the consortium, said the investors all share a commitment to ILFC's experienced management team, operating philosophy and presence in the US.

"This transaction allows ILFC to continue to serve its worldwide partners in the aviation industry with world-class service while accelerating its growth in important markets, including Asia," said Weng, who headed China's main securities regulator before founding New China Trust in 2008.

ILFC, whose current work force of 560 people includes more than 450 in the US, will be kept operationally independent and remain based in Los Angeles following the acquisition, the investors said.

Both CEO Henri Courpron and President Frederick Cromer will continue to manage the business, a decision that was confirmed by ILFC on Monday. The company said, however, that Executive Chairman Laurette Koellner will leave her job under terms of the deal. Koellner was appointed by AIG in June to oversee the CEO following an internal investigation of an allegedly improper relationship between Courpron and another ILFC employee.

"With existing management remaining in place, the transition will be seamless, allowing ILFC to maintain its focus on delivering the best mix of modern aircraft to meet our customers' needs around the world," Courpron said in a statement.

This deal will help ILFC explore opportunities in the fast-growing Asian market. In China, major national airlines operate over 170 of the company's owned planes - about 19 percent of the worldwide fleet. Last year, the lessor opened offices in Beijing and Singapore to keep pace with demand.

Chinese investment in overseas market has picked up, with mergers and acquisitions reaching $56.8 billion in 2012, according to data compiled by Thomson Reuters. That's the biggest M&A total since before the financial crisis four years ago.

China's direct investment in the United States reached $6.3 billion this year, and Chinese companies support 30,000 jobs in over 30 states, according to New York-based Rhodium Group.

Investors' interest in the US market is growing despite doubts about the accuracy of several US-listed Chinese companies and scrutiny of the business ties and activities of telecommunications giants Huawei Technologies Co and ZTE Corp.

On Sunday, the US arm of Chinese auto-parts maker Wanxiang Group Corp won a bankruptcy auction with a $256.6 million bid for substantially all of Massachusetts electric-car battery maker A123 Systems Inc.

The deal is expected to close in the second quarter of 2013 with approval from US and Chinese regulators. Both sides are allowed to terminate their agreement if the deal isn't completed by May 15, or by June 17 under a defined set of circumstances, according to filing from AIG on Monday with the US Securities and Exchange Commission.

On the US side, the Chinese group will have to go through the Committee on Foreign Investment in the United States, or CFIUS, which reviews large or sensitive foreign investments.

Clif Burns, who specializes in export controls and economic sanctions with Washington law firm Bryan Cave LLP, said the CFIUS review isn't likely to present any barriers this time.

"It seems to me the deal is likely to be approved because it deals with civil aviation leases and shouldn't encounter any difficulties," Burns said.