Posted on 01 Sep 2010
American International Group Inc.'s (AIG) plan to sell an Asian insurance business called Nan Shan was derailed Tuesday by tension between Taiwan and China.
AIG agreed last year to sell Nan Shan to China Strategic, a battery maker, and Hong Kong investment firm Primus for more than $2 billion.
But the Investment Commission of Taiwan's Ministry of Economic Affairs blocked the deal Tuesday, saying the new owners lack experience in the life-insurance business and may struggle to raise capital.
The news is another bump in the reorganization of AIG after the insurance giant was saved from collapse in 2008 by more than $100 billion in U.S. government support. The company is trying to sell businesses to raise money it can use to repay the government.
"AIG is disappointed by the Investment Commission's decision concerning the sale of Nan Shan," the insurer said in a statement that was emailed to MarketWatch.
"AIG has collaborated with the Taiwanese regulatory authorities from the outset of the sale process," the company added. "In addition to meeting the criteria determined by the Investment Commission and other regulators, 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 and incontrovertible commitment to the long-term health and prosperity of Nan Shan."
AIG also said it will meet with the Nan Shan board of directors and senior management in the coming days to determine how best to proceed.
"While this is clearly a setback, we expect other bids to emerge for this unit," said Catherine Seifert, an insurance analyst at Standard & Poor's Equity Research.
AIG shares climbed 27 cents to $34.26 in midday action Tuesday. The shares are up roughly 14% so far this year, versus a drop of more than 5% by the S&P 500 index.
Although Nan Shan is a small part of AIG's crumbling empire, the business accounts for more than 15% of Taiwan's insurance industry. That makes it strategically important to the country.
With a Chinese company winning the bidding for Nan Shan, the deal may have run aground on political rocks. Suspicions about the connections of China Strategic with political foe China held up the transaction, Reuters reported Tuesday.
Huang Tien-mu, an insurance official at Taiwan's Financial Supervisory Commission, noted that Nan Shan is a significant domestic insurance company and said his office will keep a close eye on any transfer of Nan Shan's ownership, according to Focus Taiwan News Channel.