SAN FRANCISCO (MarketWatch) — American International Group Inc. said late Wednesday that it expects to repay a massive government bailout on Friday.

The insurer also said it got the go-ahead to issue about 75 million warrants, giving private shareholders the right to buy one share of AIG common stock at $45 each.

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The warrants will begin trading on the New York Stock Exchange, under the ticker “AIG WS,” on Thursday. The warrants will be distributed on Jan. 19, to common stockholders of record as of Jan. 13. AIG shares will start trading without the right to the warrants on Jan. 20.

The warrants are an important part of AIG’s AIG, +0.39% plan to exit a government bailout that cost more than $180 billion at its peak.

If all goes according to plan, the U.S. Treasury Department will exchange $49.1 billion of preferred shares for 1.655 billion new shares of AIG common stock on Friday. This will dilute current equity holders a lot. To prevent investors from dumping their shares, AIG said late last year that it would give them warrants.

“AIG probably is just about to pay the biggest dividend of any financial-services company this year,” said Linus Wilson, assistant professor of finance at the University of Louisiana in Lafayette, La. “This is a big step. If they don’t go through with this, the exit for taxpayers from AIG is back at square one.”

The warrant dividend couldn’t go ahead until AIG, Treasury, the New York Fed and the AIG Credit Facility Trust were all confident that the insurer’s repayment plan would close on Friday.

“With today’s announcement, we anticipate that we will be able to deliver on our promise to the American people to repay the extraordinary assistance they provided to AIG during the financial crisis of 2008,” AIG Chief Executive Robert Benmosche said in a statement.

“We remain grateful for their support of AIG, and we remain convinced that the American people will realize a profit on their investment in our company,” he added.

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Also on Friday, AIG said it will repay about $21 billion it owes to the New York Fed. This will trigger a first-quarter charge of about $3.6 billion, the company noted.

AIG also plans on Friday to exit two special-purpose vehicles that held the New York Fed’s stakes in two subsidiaries, Alico and AIA Group. AIG has sold Alico to MetLife Inc. MET, +0.40% and floated AIA in an initial public offering in Asia.

But the major transaction on Friday will be the exchange of Treasury’s preferred shares into new AIG common stock. After this, Treasury will own about 92% of AIG. The government plans to sell this stake “over time” and subject to market conditions, the company said.

Warrant value window

When the new AIG warrants begin trading on Thursday, that should give investors insight into what the value of AIG stock will be without this special dividend. That, in turn, may provide a window into the value of the government’s new equity stake in the insurer.

“Tomorrow’s trading will definitely give us a better idea of how much the government’s stake is worth,” Wilson said.

Each warrant may be worth just over $21, Wilson estimated earlier on Wednesday.

AIG shares should drop by roughly half of the warrants’ price, or $10, just before the open of trading on Jan. 20. That will be the first time the shares trade without the right to the warrants, which will have been distributed on Jan. 19.

Wilson estimated Wednesday that AIG shares may trade at around $47.54 on Jan. 20, all other things being equal.

That would leave the government sitting on a paper profit of more than $30 billion from the AIG bailout, Wilson estimated.