AIG, the stricken American insurer, looks set to have suffered a heavy investment loss after it offloaded its stake in London's City Airport to its joint venture partner for an estimated £250 million — two-thirds of the price it paid.

The New York-based insurer, which is battling to sell assets to help repay an $85 billion (£47.8 billion) loan from the US Federal Reserve, sold its 50 per cent stake in the airport to Global Infrastructure Partners.

The deal came less than two years after AIG and GIP, an investment fund owned by Credit Suisse, the Swiss-American banking group, and General Electric, the US conglomerate, bought City for £750 million.

Since then the pair have invested substantial sums in the business, helping to send passenger numbers soaring and almost doubling pre-tax profits last year.

Selling the stake, for a reported £250 million, implies that AIG will have to book a loss on the sale of as much as £125 million.

Neither AIG nor GIP would confirm details of the deal, which was hammered together a week after the insurance group was brought to the brink of collapse following a downgrade to its credit rating.

After a weekend of tense negotiations, during which US authorities attempted to broker a sale, AIG struck a deal with the Fed that gives the American central bank control over 79.9 per cent of its voting rights.

Both sides have denied that the rescue amounted to a de facto nationalisation.

However, Edward Liddy, the new chairman and chief executive, has embarked on massive sale of assets to repay the facility.

AIG has agreed to pay a punitive rate of interest on the loan of 8.5 per cent more than the rate London banks charge to lend to each other for three months.

That rate, three-month dollar Libor, soared from 3.88 per cent to 4.05 per cent today as the credit markets went into seizure in the wake of Congress's rejection of a planned $700 billion bailout for the country's financial system last night.

Repaying the loan at that level would mean AIG paying an interest rate of 12.55 per cent - more than two and a half times the 5 per cent base lending rate in the UK.

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