Bloomberg is reporting that AIG, the insurance firm that’s more than majority owned by the U.S. government, may issue warrants to shareholders so that its stock price doesn’t collapse when the government attempts to turn its stake over to the private sector.
The warrants AIG intends to dole out will give investors the right to purchase shares at a set price any time in the next decade as incentive to hang onto their shares. Part of the hobbled firm’s plan to disentange itself from the government involves the U.S. converting its preferred AIG shares into common stock, which would dilute the value of existing shares and could spur some investors to sell. Because the ultimate goal is for the U.S. to sell the converted common shares, it would be bad if private demand were to slacken.
Currently, the government owns about an 80 percent stake in AIG. That proportion would rise to 92 percent on conversion of the warrants, a source told Bloomberg. Such massive ownership could force the government to put AIG on its balance sheet, but Treasury is working on a way to set up special investment vehicles to avoid such an occurrence.