AIG Chief's Big Investment Pledge Delays a Sale of Local Unit : U.S. Insurer Cuts Deal in Malaysia 
International Herald Tribune
May 5, 1998
Thomas Fuller

Western companies looking to do business in cash-strapped Asian countries may want to take a page out of Hank Greenberg's book.

Until Monday, Mr. Greenberg, the chairman of American International Group Inc., one of the world's biggest insurance companies, had a problem.

The Malaysian government was threatening to compel Mr. Greenberg's company to sell a large chunk of its Malaysian subsidiary, as part of a World Trade Organization accord on financial services reached in December. Mr. Greenberg, a feisty presence no matter where he does business, had lobbied intensely against limiting foreign insurers' ownership, single-handedly delaying a global trade agreement signed by more than 100 countries.

But the problem was fixed Monday with what might be described as a model deal for Asia's financial crisis, as Mr. Greenberg deployed cash investments in Malaysia's struggling economy while working on his personal relations with Malaysian leaders. During a visit to Malaysia, Mr. Greenberg said that AIG, which is based in New York, would pump as much as $2.5 billion into foundering construction projects and deflated financial markets in Malaysia and across the region.

He signed an agreement setting up a joint-venture software company to operate in Malaysia's multimedia supercorridor — a high-technology development project dear to the country's prime minister, Mahathir bin Mohamad; and he announced that AIG would give $1 million to Malaysians studying in the United States who have been hurt by an unfavorable exchange rate since the regional economic crisis started last year.

Mr. Mahathir, in turn, said AIG would be allowed to keep total ownership of its local insurance business for five more years. He called AIG "a very special case" but said the rule would have to apply to other foreign insurers in the country. Aetna Inc., another U.S. insurance company, has also sought more time to reduce its stake in the local unit, Aetna Universal Insurance Bhd., in which the parent company holds roughly 80 percent.

"AIG, I believe, have got lots of money," Mr. Mahathir joked Monday at a signing ceremony for the software company. "We'd like a bit of that money." Mr. Mahathir wasn't just kidding. Last year, AIG company's net profit was $3.3 billion, one-third of it from Asia. That was up from $2.9 billion in 1996. AIG, which operates in 130 countries and has a market value of about $93 billion, four times Malaysia's annual budget, was founded in 1919 in Shanghai.

Mr. Greenberg has built AIG around his tenacious personality and has run AIG the way ethnic Chinese patriarchs in Southeast Asia have molded their conglomerates around their families. Indeed, Mr. Greenberg's likely successor at AIG is Evan Glenn Greenberg, his second son.

With the deal Monday, Mr. Greenberg did what years of lobbying at the World Trade Organization had failed to do, a success partly attributed to Mr. Greenberg's personal touch in his relations with Malaysian government officials. He is said to be a long-time friend of Mr. Mahathir's and has forged close links with Malaysia's deputy prime minister, Anwar Ibrahim.

In a 40-minute private meeting Monday, Mr. Greenberg and Mr. Mahathir discussed a $1.5 billion infrastructure fund that would make direct investments in stalled construction projects in Malaysia, as well as other Southeast Asian countries.

"The prime minister told him to take a look at some of the infrastructure

projects around KL which need to be kick-started," said Alex Lee, chairman of a Malaysian software company who attended the closed-door meeting, referring to Kuala Lumpur. "He didn't actually name the projects but said, 'Some of them you should look at.' Greenberg is going to send some guys down to study them."

Also part of the package was a $1 billion recovery fund designed to help cash-strapped companies throughout the region. "It'll do things like restructure debt for them, take over some of the debt, easing cash flows," Mr. Lee said.

Mr. Greenberg said it would take two to three months to set up the recovery fund. The sweetener for Mr. Mahathir was the announcement of a joint venture between AIG and Mr. Lee's company, Software International Corp. The newly formed company will operate from the multimedia supercorridor.

Before the WTO agreement in December, Malaysian law allowed foreign companies to own no more than 30 percent of a domestically incorporated financial-services company. AIG was exempt, however, because it was set up before the ceiling was imposed.

The December agreement raised that ceiling to 51 percent and called on all foreign companies that had stakes higher than 51 percent to divest themselves of the excess holdings. U.S. officials negotiated against the divestiture clause but did not succeed in removing it.

During the negotiations, Asian diplomats and WTO officials accused the United States of putting the entire deal at risk to protect the interests of AIG.

At the time, officials at the WTO secretariat said that American negotiators were being pushed by the U.S. Treasury Department and the Office of the U.S. Trade Representative at the behest of Mr. Greenberg.

Mr. Greenberg declined to comment on these allegations.

But in a letter to the Journal of Commerce, he wrote, "'The goal of the WTO negotiations is to bring about liberalization, not contraction of financial services in world markets."

Copyright © 2006 the International Herald Tribune