AIG in $2.2 bln Taiwan sale, but concerns remain
American International Group Inc accepted a USD 2.16 bn cash offer for its Taiwan Nan Shan Life unit from a group led by conglomerate Ruentex, though long-running regulatory concerns mean the sale is not assured.
January 12, 2011 / 21:41 IST
American International Group Inc accepted a USD 2.16 bn cash offer for its Taiwan Nan Shan Life unit from a group led by conglomerate Ruentex, though long-running regulatory concerns mean the sale is not assured.
AIG sold Nan Shan once before, only to see the deal blocked by Taiwanese regulators concerned about the suitability of the buyer group, which was led by a battery maker. The new deal, with a retailer and a shoe maker, could also run into trouble.Sources have said Ruentex, a major player in hypermarkets in China and Taiwan, may not meet all of the five criteria the regulator laid down for a buyer. AIG has been trying to sell the unit for some 15 months as part of its plans to help pay back the US government for its USD 182 bn bailout.Nan Shan is Taiwan's No. 3 insurer by market share after the insurance arms of Cathay Financial Holding Co and Fubon Financial Holding Co. It has about 4 million policy holders, about one-sixth of Taiwan's people.The buyer group, called Ruen Chen Investment and comprising Ruentex and shoe maker Pou Chen, signed a deal Wednesday for the 97.57% of Nan Shan for sale, Ruentex said in a statement to the Taiwan stock exchange.AIG said it was satisfied the Ruentex bid would meet guidelines set out by the regulator."Ruen Chen offers strong operational and funding capabilities and possesses a clear ability to satisfy the strict criteria that governed AIG's bid review process," said Robert Benmosche, AIG's chief executive, in a statement.AIG shares were off 0.3% in early trading. The stock is up more than 40% since December 8, as the company neared a recapitalization deal with the US Treasury. AIG is expected to confirm sometime Wednesday that the deal will close Friday.Hypermarkets, shoes and insuranceAfter regulators blocked the first sale, AIG was forced to put the asset back on the market. Benmosche personally visited Taiwanese officials in December, despite being in the middle of aggressive cancer treatment, to discuss their guidelines.Those criteria are that any buyer needs to show fund-raising ability for future operations, a long-term commitment to run Nan Shan, experience running an insurance business, and must promise to take care of employees and policy holders. It must have funding sources that meet regulations.Ruentex Chairman Samuel Yin has owned and run insurance and asset management businesses in past, but has since sold them at a profit. The regulator, seeking a long-term stable owner, in general does not approve of buying assets just for resale."The regulators' criteria are subject to interpretation. Hence, there is still some uncertainty about this deal going through," Sally Yim, a senior analyst at the financial institutions group at Moody's Investors Service said, adding that AIG is likely to have reviewed the bid carefully so it would feel confident about getting it past the regulators.The Financial Supervisory Commission, the financial regulator, said in a separate statement that AIG had communicated its choice of buyer in advance and "should understand the FCS's position."AIG moved to address concerns about the regulatory outlook, saying in its statement that the deal includes a number of commitments, including an agreement to maintain existing compensation and benefits packages for employees and the existing organizational and commission structure.Buyer group head Yin told the briefing that it would consider a public share offer for Nan Shan and promised not to sell the business for 10 years. Regulators have in the past suggested to AIG that it sell shares in Nan Shan.Quick reviewLast week the regulators promised a quick review of any deal. But the protracted process has raised questions over Taiwan's regulatory regime, a broader issue that has come to the attention of the main US business group in Taiwan, the American Chamber of Commerce.In a survey of its members released last week, it said that inconsistent regulatory interpretations were one area where there had not been progress in Taiwan.Other insurers have faced regulatory hurdles in Taiwan, with MetLife's planned sale of its local unit rejected in October and Aviva's plan to exit its local venture also blocked. Taiwan's insurance industry is a USD 52 bn market, Asia's fourth-largest, but its 30 life insurance companies had collective profits of just T$4.76 billion in 2009, the lowest since 2005, government data showed.Moody's Yim said the sale below Nan Shan's book value reflected the fact that Nan Shan and most Taiwan insurers are hamstrung by negative spreads after they sold products with guaranteed returns when interest rates were high.Citi was Ruentex Group's financial adviser. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
