American International Group Inc. (AIG) is selling its Taiwan
life insurance unit, Nan Shan Life Insurance Co., to Taiwan's Ruen
Chen Investment Holdings Ltd. for US$2.16 billion, as the U.S.
insurer struggles to repay funds it received through a U.S.
government bailout during the financial crisis.
But the sale to Ruen Chen, a cement-to-footwear consortium,
still awaits approval from Taiwan's Financial Supervisory
Commission, which in August blocked a previous US$2.15 billion deal
on concerns previous Hong Kong-based buyers lacked financial
strength and commitment to Nan Shan.
In a surprise move Wednesday, AIG picked Ruen Chen as the
preferred bidder for Nan Shan Life, passing over rival bids from
financial holding companies. Ruen Chen is a consortium in which
Ruentex Development Co. (9945.TW), Ruentex Industries Ltd.
(2915.TW) and three investment funds privately-owned by Ruentex
group Chairman Samuel Yin have a combined 80% and Pou Chen Corp.
(9904.TW) the remaining 20%.
"The participants in the consortium enjoy an excellent
reputation in Taiwan," AIG President and Chief Executive Robert
Benmosche said in a statement. "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."
"Consistent with these criteria, Ruen Chen has demonstrated that
it is able and willing to invest in Nan Shan's future, and that it
will protect and serve the best interests of Nan Shan's
policyholders, employees and agents," he added.
A listing of Nan Shan on the Taiwan stock exchange is a viable
option in the future and would help support the Taiwan insurer's
capital base, Andrew Borodach, AIG's assistant general counsel,
said at the news conference after the announcement in Taipei
Wednesday.
Supermarket operator Ruentex Development and cement-and-chemical
fiber maker Ruentex Industries are both owned by Yin, while
footwear maker Pou Chen is controlled by C. J. Tsai, another local
tycoon.
However, Ruen Chen's lack of significant experience in operating
an insurance company could again raise concerns from Taiwan's
financial regulator, which blocked the deal by a consortium
comprising Primus Financial Holdings Ltd. and Hong Kong-listed
China Strategic Holdings Ltd. in August last year. The regulator
cited concerns about China Strategic's financial strength and
commitment to Nan Shan as reasons behind turning down the Hong Kong
deal.
"It's a surprising outcome," said Sam Radwan, managing partner
of Enhance International, a consultant focused on insurance in
Taiwan and mainland China. "The FSC has always been clear as to
what their requirements are."
The FSC has said previously that its approval of a potential
deal will depend on whether a buyer has sound financing and
insurance experience, will look after policyholders and staff, and
make a long-term commitment to the company, and can meet future
funding needs. The FSC said in a statement Wednesday AIG had
communicated with its sale decision with the regulator and it will
"cautiously review" the bid.
Yin said that around half of the financing for Ruen Chen's
US$2.16 billion bid for Nan Shan will come from bank loans, and the
rest will be cash.
Yin's group of Ruentex companies bought a 20% stake in ING Groep
N.V.'s life-insurance unit in Taiwan in 1986 but sold its entire
stake back to ING in 2001. One question regulators will want to
consider is whether that ownership qualifies as operational
experience, Radwan said.
AIG's Borodach said, however, that "Ruentex's 15 years (in the
ING venture) should count as an experience in managing and
operating insurance company."
The FSC will also be concerned that the deal will be well
received by Nan Shan's workforce and doesn't lead to job losses.
AIG said in its statement Wednesday that its agreement with Ruen
Chen "includes an agreement to maintain the existing compensation
and benefits package for employees and the existing agency
organizational and commission structure." The current management
team will also be maintained, as will the Nan Shan brand, AIG
said.
Apart from its involvement in ING's Taiwan unit, Ruentex
companies hold a 15% stake in SinoPac Financial Holdings Co.
(2890.TW), a medium-sized financial conglomerate in Taiwan. For its
part, Pou Chen owns about 4% in Mega Financial Holding Co.
(2886.TW), a medium-sized financial conglomerate in Taiwan, and
also has a stake in Chinese lender First Sino Bank.
Ruen Chen was formed as a consortium in December to specifically
bid for Nan Shan Life.
Yin is seen as having close links with Taiwan's government and
the political parties, a person familiar with the situation
said.
According to a Taiwanese lawmaker Tsai Cheng-yuan, who cited
information from his contacts at the U.S. Treasury Department last
week, Ruen Chen's bid was less than the US$3 billion offered by
Chinatrust Financial Holding Co. (2891.TW) and US$2.7 billion by
Cathay Financial Holding Co. (2882.TW).
Fubon Financial Holding Co. (2881.TW) and a consortium made of
Primus, Taiwan Secom Co. (9917.TW) and Goldsun Development &
Construction Co. (2504.TW) also submitted bids for Nan Shan this
time around.
Nan Shan's large customer base makes it an attractive target for
local firms looking to secure a bigger share of the island's
crowded insurance market. But the high penetration rate and large
number of unprofitable policies sitting on the books of many
insurers has made foreign investors wary of the sector, and
prompted a spate of exits. Nan Shan is the biggest foreign player
in the island's insurance market by market share.
According to AIG, Nan Shan is the largest life insurer in Taiwan
by total book value with 4 million policyholders. Its sales network
consists of 24 branches, 500 agency officers and more than 33,000
agents.
-By Aries Poon and Alison Tudor, Dow Jones Newswires;
886-2-25022557; aries.poon@dowjones.com
(Fanny Liu contributed to this article)
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