NEW YORK, United States — AMERICAN International Group Inc yesterday slashed the amount of money it owes the government by US$25 billion as it moved two subsidiaries into special holding units ahead of their planned spin-off or sale.

AIG moved American International Assurance Co and American Life Insurance Co into special purpose vehicles, which are used ahead of a move to separate a unit from a parent company. The government is receiving preferred equity stakes in the two life insurance companies worth US$25 billion in exchange for a reduction in the amount of money AIG owes

the government.

AIG will continue to hold the common stakes in AIA and Alico until it determines whether to complete initial public offerings for the companies or sell them privately. No timetable has been announced for when an IPO or sale will be completed.

Shares of the conglomerate based in New York rose US$1.49, or 5.2 per cent, to US$29.89 in premarket trading.

AIG was bailed out by the government last year at the peak of the credit crisis. As losses continued to pile up, the government eventually extended AIG an aid package worth more than US$180 billion. The government also received a nearly 80 per cent stake in AIG in return for the support.

The insurance giant has been selling assets and spinning off divisions in an effort to help repay the government debt.

As of September 30, AIG had tapped US$122.31 billion of the aid package and owed the government US$85.66 billion in loans. Yesterday’s separation of AIA and Alico would reduce the outstanding aid package to US$97.31 billion and the amount owed in loans to US$60.66 billion.

“AIG continues to make good on its commitment to pay the American people back,” AIG CEO Robert Benmosche said in a statement.

The government received a preferred stake in AIA, an Asian life insurer with more than 20 million customers, worth US$16 billion. The preferred stake in Alico, an international life insurance firm that operates in more than 50 countries around the world offering life and health insurance, is worth US$9 billion.

AIG said it would take a US$5.7 billion charge during Benmosche reiterated AIG continues to expect volatility in quarterly results as the insurer continues to restructure its operations to repay the government.

The plan to separate AIA and Alico and give the government US$25 billion in preferred shares of the two companies was first announced in late June. AIG had been discussing sales of the units as early as March.