In order to attain funds for repaying the government’s bailout, on Monday, American International Group Inc. (AIG) announced the sale of its Asian life-insurance unit, American International Assurance (AIA) to the U.K.’s Prudential Plc (PUK) for about $35.5 billion. This comprises about $25 billion in cash, $8.5 billion in face value of equity and equity-linked securities and $2.0 billion in face value of preferred stock of Prudential. Subject to other terms of the deal, the transaction expected to close by the end of 2010.

AIG is expected to utilize the $25 billion cash to redeem the $16 billion stake in AIA from the Federal Reserve and to repay the $9 billion credit facility. The remaining $10.5 billion in securities are expected to be cashed in depending upon the market conditions but will be primarily used for further debt repayment of Federal Reserve.

AIG is desperately seeking the asset sales approach to get rid of the government bailout loan of about $180 billion, taken during the height of financial crisis in 2008. Currently, the U.S. government enjoys about 80% stake in AIG. On the other hand, Prudential is considering a right offering to raise $20 billion to fund the AIA deal. This offering will be supported by Credit Suisse Group (CS), London ’s HSBC Holdings, a wing of HSBC Holdings Plc (HBC) and JPMorgan Chase & Co. (JPM).

Accordingly, AIG is progressing steadily with its divestiture program to repay the government loan. Alongside, an acquisition of AIG’s American Life Insurance Co. (ALICO) unit for about $15 billion remains pending with MetLife Inc. (MET) and is expected to close very soon.

While the AIA sale is expected to relieve AIG of a significant debt burden, Prudential is expected to raise its Asian market share to 60% from its prior 44% from the deal. Acquiring AIA will help Prudential consolidate its already firm business in the Asia-Pacific region where development and consumer spending in the middle class sector has been growing steadily and is expected to be demand-generating over next many years.

With the completion of the deal, Prudential will hold all of the companies of the AIA operating in 15 markets across the Asia Pacific Incorporatedluding the company’s international network of more than 320,000 agents and approximately 23,500 employees. AIA serves the holders of more than 23 million in-force policies and the more than 10 million participating members of its clients for group life, medical, credit life coverage and pension products.

Zacks Investment Research

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