In an effort to restructure its sagging business and payback the taxpayers, the once global insurance leader American International Group (AIG) today said it will sell its Asian life insurance unit (AIA) to the British insurance major Prudential for $ 35.5 billion.

AIG has entered into definitive agreement for sale of the AIA Group, to Prudential for $ 35.5 billion, including $ 25 billion in cash, $ 8.5 billion in face value of equity and equity-linked securities, and $ 2 billion in face value of preferred stocks of Prudential, subject to closing adjustments, the company said in a statement here today.

"This transaction, the most significant milestone to date in our ongoing effort to repay taxpayers, also gives us greater flexibility to move forward with AIG's restructuring and focus on enhancing the value of our key insurance businesses, which will benefit all stakeholders," AIG president and chief executive officer Bob Benmosche said today announcing the deal.

The cash portion of the proceeds from the sale will be used to redeem preferred interests with a liquidation preference of $ 16 billion held by the Federal Reserve Bank of New York (FRBNY) in the special purpose vehicle formed to hold the interests in AIA, and to repay $ 9 billion under the FRBNY credit facility.

"In considering two viable, very attractive alternatives to successfully monetise AIA, including an initial public offering, we decided that a sale to Prudential enables AIG to realise value on a faster track to repay the US taxpayers," the AIG president Benmosche added.

Further, AIG intends to monetise the $ 10.5-billion in face value of Prudential securities over time. All net cash proceeds from the monetisation of these securities will be used to repay any outstanding debt under the FRBNY credit facility.

The AIG board, which is nearly 80 per cent owned by the US government, and Prudential has approved the transaction which is to close by the end of 2010. The transaction is subject to approval by the Prudential shareholders, regulatory approvals, and customary closing conditions.

"Combining Prudential, which has long been committed to enhancing its profile in Asia, and AIA, a remarkable Asian franchise, will create an unrivalled life insurance powerhouse in Asia, one of the world's fastest growing markets," Benmosche added.

The AIA Group is a leading pan-Asian life insurer that traces its roots in the Asia Pacific region dating back more than 90 years. It provides consumers and businesses with products and services for life insurance, retirement planning, accident and health insurance as well as wealth management solutions.