American International Group, Inc. (NYSE:AIG) announced its plan to sell some of its stakes in AIA Group Ltd. (HK:1299), its Asian insurance unit, to repay some of the $182 billion bailout money provided by the United States government in 2008.

The insurance giant aims to raise as much as $2 billion from selling its ordinary shares in AIA. The company funds will be used to repurchase stocks or capital management. According to American International Group, Inc. (NYSE:AIG), its board of directors approved the share buy back plan, worth $5 billion from the United Stated Treasury Department.

Since the initial public offering of AIA Group at the Hong Kong stock exchange, American International Group, Inc. (NYSE:AIG) was active in selling its stakes in the company, according to the report from New York Times DealBook.  AIA raised $17.8 billion from its IPO.

The report also cited that American International Group, Inc. (NYSE:AIG) offered its 600 million shares in AIA for 25.75 Hong Kong dollars per share to 26.75 Hong Kong dollars per share. AIG offered a 2.1 percent discount on the low end of stock, or a 1.7 percent premium on the high end, based on the closing price of the stock in Hong Kong on Thursday.

AIG holds 18.6 percent stakes on AIA. The insurance giant will retain 13 percent interest in its Asian insurance business unit, after selling its 600 million shares. AIG previously sold a large chunk of its shares in AIA with a $6 billion total market value.

Last month, the Treasury Department decided to sell its $5 billion worth of shares in AIG sooner, by reducing the length of the lock-up period to 30 days instead of 90 days. At present, the federal government owns 53 percent of AIG stock. The company aims to reduce the government’s holdings below 50 percent.

Analysts from Wells Fargo Securities estimated that the government’s holding in AIG after the $5 billion stock purchase would be 48 percent. The research firm’s valuation range for the company’s stock is around $40 to $45, and its rating is outperform.

The Treasury Department already recovered $23.3 billion out of the $182 billion in bailout money provided to AIG. According to analysts, AIG stock is becoming profitable for the government, since the stock is currently trading around $34.50 per share, higher than the $29 per share breakeven price.

Analysts expect the government to recover more of its bailout money from AIG before the upcoming presidential election in November. By that time, the government’s stake in AIG would be lower than 30 percent.

The Federal Reserve will serve as the main regulator of AIG once the government’s holding in the insurance company becomes lower than 50 percent.

Wells Fargo Securities notes:

We think expectations in the market leaned closer to the full disposition of AIA once the lock-up expired on September 4. A larger sale of AIA shares could have potentially funded a bigger share repurchase. Should AIG fully utilize its new $5
billion authorization, the U.S. Treasury’s remaining ownership of AIG would fall from 53% to around 48%. If AIG’s buyback of $5 billion is matched by an equivalent $5 billion secondary offering from the U.S. Treasury, government ownership in AIG would drop closer to 42%.

All totaled, we think AIG continues to make progress toward its joint goals of paying back the government while reducing U.S. Treasury ownership in the company. Yet we believe today’s announcement will be viewed as modestly disappointing since it fails to (1) maximize the full capacity of AIG’s potential liquidity to buyback shares and (2) lower the U.S. Treasury stake in AIG at a faster pace.