(Corrects the size of Nan Shan’s assets in 1970 in penultimate paragraph of story published Aug. 31.)
American International Group Inc.’s planned $2.15 billion sale of its Taiwan life insurance unit was blocked by local regulators, setting back the U.S. insurer’s effort to repay its $182.3 billion government bailout.
A group led by Primus Financial Holdings Ltd. failed to convince the Financial Supervisory Commission it has the financial capability and long-term commitment to operate the business, Wu Tang-chieh, vice chairman of the regulator, said at a briefing in Taipei today. AIG agreed in October to sell its almost 98 percent stake in Nan Shan Life Insurance Co. to Primus Financial and China Strategic Holdings Ltd.
The rejection is a blow to AIG, which has been trying for more than a year to complete its second-biggest disposal since the September 2008 U.S. government bailout. It paves the way for Chinatrust Financial Holding Co. to bid for Nan Shan, Taiwan’s third-largest insurer by premiums.
“Chinatrust has experience in insurance and may have a long-term interest in the industry, so it may have a greater chance of getting approval,” said Monika Yang, who helps oversee $2 billion at Hamon Asset Management Ltd. in Hong Kong.
Primus can appeal to the Cabinet within 30 days after receiving the official rejection, Vice Economics Minister Hwang Jung-chiou said at an earlier briefing. Primus Financial Chairman Robert Morse declined to comment when reached on his mobile phone.
“AIG is conferring with the Primus Nan Shan consortium as to appealing this decision,” AIG said in an e-mailed statement today. “AIG believes that its additional accommodations of regulatory requests, including a seven-year lockup mechanism agreed to by the Primus Nan Shan consortium and a $325 million escrow agreement agreed to by AIG, demonstrate clear support for the Nan Shan capital structure.”
Nan Shan would have marked the first deal for Morse, a former Citigroup Inc. Asia investment banking chief, since he started Primus Financial 17 months ago.
Hwang said checks by the economics ministry’s investment commission showed Primus Financial’s bid wasn’t backed by funds from China. The application was deemed a foreign investment and vetted as such, he said.
Regulators earlier expressed concern that the bid had Chinese funding. Chinese investors aren’t allowed to purchase control of Taiwanese financial companies.
The Primus-led group failed to convince the regulator it had the financial capability “to ensure future capital expansion and a long-term commitment to operate the business,” Wu said. The regulator hopes AIG will continue to operate Nan Shan Life after the sale’s rejection, Wu said. He said he doesn’t know whether AIG will cut jobs at the insurer.
Chinatrust Financial, Taiwan’s third-largest financial company by market value, said Aug. 11 it was still interested in buying Nan Shan if regulators rejected the Primus Financial deal. Chinatrust failed in a bid for Nan Shan in October. Vanney Cho, a spokesman at Chinatrust, today declined to comment on whether the company will approach AIG.
New York-based AIG has secured agreement to sell almost $30 billion of assets so far. The company announced Aug. 11 it will sell a majority stake in American General Finance Inc., AIG’s consumer lender, to Fortress Investment Group LLC, getting rid of a business that posted about $1.7 billion in operating losses since 2008 and accumulated more than $17 billion in debt.
AIG’s previous disposals include a majority stake in reinsurer Transatlantic Holdings Inc., a Tokyo office tower and an equipment insurer.
Chief Executive Officer Robert Benmosche, 66, also is divesting AIA Group Ltd. and American Life Insurance Co., known as Alico, the non-U.S. life insurance divisions. AIG is planning an initial public offering for AIA in November after the collapse of a $35.5 billion agreement to sell the division to Prudential Plc. AIG struck a deal in March to sell Alico to MetLife Inc. for about $15.5 billion.
Primus Financial was set up in April 2009 after raising $1.2 billion. China Strategic would own 80 percent of the group buying Nan Shan and Primus would own the remainder under their plan. China Strategic halted trading in Hong Kong starting at 2:30 p.m. local time after Taiwan announced the rejection.
Nan Shan is burdened with unprofitable guaranteed-return policies it sold in the 1990s when interest rates were higher, raising concerns that a buyer may need to inject more capital.
Nan Shan, based in Taipei, was set up in July 1963 and was bought by American International Underwriters Ltd., the property and general insurance unit of AIG, in January 1970, according to Nan Shan’s website.
It has 4 million policyholders and is the third-largest insurer in Taiwan by total premiums, with a network of 24 branches and 480 agency offices, according to the website. Assets rose from NT$79 million ($2.5 million) in 1970 to NT$1.7 trillion at the end of June, the website said.
Deutsche Bank AG advised Primus Financial on the acquisition. Blackstone Group LP and Morgan Stanley advised AIG on the sale.