Mumbai: Embattled American International Group Inc., or AIG, plans to sell its two retail finance units in India as it raises funds by selling assets worldwide to repay a US government bailout of $182.5 billion (Rs8.8 trillion), according to two persons familiar with the plan.
The New York-based insurance firm has given the mandate to find buyers for Weizmann Homes Ltd and Vivek Hire Purchase and Leasing Ltd to Germany-based Deutsche Bank AG, the persons said on condition of anonymity.
“In May, Deutsche Bank had enquired about our interest to purchase these two companies,” said an official from one of the largest industrial houses in India. “Since we were not interested, we did not go ahead.” He wanted neither his nor his firm’s name to be identified because he is not authorized to speak to the media.
AIG India country head and chief executive Sunil Mehta declined comment.
The insurer needed the US-funded bailout to avoid bankruptcy amid the financial turmoil that peaked in mid-September with the collapse of investment bank Lehman Brothers Holdings Inc.
In 2006, AIG bought a 75% stake in Chennai-based Vivek Hire Purchase, a unit of consumer durables chain Vivek Ltd. The next year, it acquired a majority stake in Weizmann Homes, a housing finance firm registered with the National Housing Bank, as part of its plans to tap a booming retail finance sector, particularly in rural markets where larger lenders such as ICICI Bank Ltd and HDFC Bank Ltd had minimal presence.
Both Weizmann Homes and Vivek Hire Purchase have around 300 employees each. AIG’s plan was to build its own distribution network for marketing financial services through these firms. Both are unlisted firms, and Mint could not independently ascertain their financial performance.
“It’s very difficult for new players to enter this sector (retail finance),” said Ravindra Nath, head of institutional services at Asit C Mehta Investment Intermediaries Ltd. “There are entry barriers in the form of well-established players.”
AIG, with around 10 businesses in India, has alliances with the Tata group for its core life and non-life insurance businesses. It is also in partnership with Bangalore-based RMZ Corp. in real estate development. It has an independent presence in areas such as asset management, private equity, aircraft leasing and consumer and home finance.
The company also owns AIG System Solutions Pvt. Ltd, a software company with 1,050 employees, and Global Information Systems Ltd, a business process outsourcing unit that provides back-end services for its core insurance business with nearly 500 seats.
“All these businesses were building blocks for AIG in India, and we had a diversified footprint,” said a senior AIG official on condition of anonymity because he is not authorized to speak to the media.
But AIG’s plans came unstuck after the global financial system unravelled in the last quarter of 2008. That had effects in India too as the local unit had to shelve its mortgage guarantee partnership with National Housing Bank.
The parent firm has announced a divestiture plan to sell parts of its business, mainly asset management, across the world, including India, to Franklin Templeton Investments. Its exclusivity agreement with Templeton ended on 15 June.
The two people Mint spoke with and who are familiar with the plan said the sale of Weizmann and Vivek Hire Purchase is part of the divestiture. Additionally, AIG did not have much success in these businesses. “Both these businesses need scale,” said the senior AIG official mentioned earlier. “Sizeable returns on these investments may take a while. So, we will focus on core life and non-life business.”
After years of low interest rates and aggressive expansion during 2003-07, the retail finance sector saw its growth crimped in the last financial year. According to Reserve Bank of India data, housing loans for April-February fell to Rs19,012 crore from Rs26,930 crore a year earlier.