American International Group (AIG) has entered into a definitive agreement for the sale of the AIA Group, a pan-Asian life insurance companies, to Prudential for approximately $35.5bn, including $25bn in cash, $8.5bn in face value of equity and equity-linked securities, and $2bn in face value of preferred stock of Prudential.

According to AIG, the cash portion of the proceeds from the sale will be used to redeem preferred interests with a liquidation preference of approximately $16bn 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 approximately $9bn under the FRBNY Credit Facility.

In addition, the company intends to monetize the $10.5bn in face value of Prudential securities over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods. All net cash proceeds from the monetization of these securities will be used to repay any outstanding debt under the FRBNY Credit Facility.

The transaction includes all of the companies of the AIA Group operating in 15 geographical markets across Asia Pacific, including the company’s international network of more than 320,000 agents and around 23,500 employees serving the holders of more than 23 million in-force policies and the more than 10 million participating members of its clients for group life, medical, credit life coverage, and pension products, the company said.

Bob Benmosche, president and CEO of AIG, said: “In considering two viable, very attractive alternatives to successfully monetize AIA, including an initial public offering, we decided that a sale to Prudential enables AIG to realize value on a faster track to repay US taxpayers.

“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.”

The transaction has been approved by the boards of directors of both AIG and Prudential, and is expected to close by the end of 2010.