NEW YORK (Reuters)—American International Group Inc. and the U.S. Treasury Department will sell nearly $9 billion in AIG stock, they said Wednesday, a huge offering but less than half of what had been contemplated earlier this year.

AIG shares fell more than 2% in premarket trading on the news, continuing the sharp slide that has knocked more than one-third off the company's value in the past four months. At the premarket price, AIG was just pennies from the government's $28.72 break-even point.

Based on that figure and the government's total shareholding, Treasury would have to raise just more than $47.5 billion in total from AIG share sales to break even.

When AIG was rescued in September 2008, few expected it would even exist today. The company received some $182 billion in bailouts and managed to restructure while preserving two core insurance businesses.

Stock price slides

But the prospective offering of 100 million shares by the company and 200 million shares by the Treasury has been pressured by the slide in AIG's stock.

A mix of heavy interest from short-sellers betting the shares would fall further, dilution fears for those with long positions and operational questions linked to legacy charges at two AIG units weighed on the shares, driving them from the mid-$40s range to the upper $20s.

AIG said last Friday that it needed to raise $3 billion in the offering, which would imply a price of around $30 a share. But one investor said Wednesday that the offering was more likely to price at a discount to where the shares are now, a view shared by most sources familiar with the process.

If the stock priced at a 5% discount to Tuesday's close, as has been suggested is possible, the offering would be worth $8.44 billion.

When Wall Street banks offered their services to manage the stock sale in January, there was talk of an offering of more than $20 billion.

Treasury also has the option to sell an extra 45 million shares to cover any overallotments, which would raise the value of the sale to more than $10 billion.

Assuming Treasury sells only the 200 million shares, the government's stake in AIG would fall to 77% from the current 92%.

AIG shares fell as low as $28.80 in premarket trading from a $29.62 close Tuesday. That marks the stock's lowest point since August 2010.

Shares have closed lower in 31 of the last 42 trading sessions, going back two months, according to Thomson Reuters data.