economics

March 14, 2010

Another AIG Deal Hangs in Limbo

Filed under: Uncategorized — ktetaichinh @ 3:56 pm
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Since then, the deal has gone nowhere, fast. Taiwan’s Investment Commission, which vets foreign investment into the island’s economy, has yet to give its blessing but won’t even begin reviewing a new official application submitted in January—the first one was kicked back for lacking enough detail—until after it meets with a group of Taiwan lawmakers, possibly later this month. It is fairly rare for Taiwan’s legislature to get involved in approval for a deal like this.

And if the Investment Commission gives the go-ahead, the Financial Supervisory Commission also needs to offer its support.

Those involved in the deal are frustrated at the delays and had expected a better sense by now on how long the process would take, according to a person close to the situation.

Agence France-Presse/Getty ImagesThe proposed sale of AIG’s Nan Shan Life unit was protested by Nan Shan insurance agents in November.

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A separate sale of a portion of AIG’s advisory and asset-management business to Richard Li’s Pacific Century Group for as much as $500 million was supposed to close by end-2009 but has encountered multiple delays and has yet to be completed. The unit, AIG Investments, is being renamed PineBridge Investments in conjunction with the planned sale, AIG said in November.

Several concerns have held up the Nan Shan approvals. One is that the buyers aren’t established players in the insurance business, and some have questioned the wisdom of entrusting the accounts of Taiwan’s third-largest insurer by gross premiums to relative newcomers. The consortium argues that its leaders, including a former chief executive of Hong Kong’s Hang Seng Bank, a unit of HSBC Holdings PLC, and an ex-top Citigroup Inc. banker in Asia, have extensive experience in financial services.

The other concern, and the one that has become more politicized, is over allegations that the buyers have ties to mainland Chinese interests. Primus and China Strategic have denied this, and AIG said it received “legally binding representations” from them that no mainland Chinese money is being used to fund the deal. Even though Taiwan is soon expected to allow mainland Chinese financial firms to acquire up to 10% of their Taiwanese counterparts, many in Taiwan fear the prospect of China wielding too much power through direct investments in the island’s economy.

However, getting a good price from other buyers might be a challenge. The most likely candidates would be those that lost out on the bidding last year, including Fubon Financial Co. and Cathay Financial Holding Co., the No. 1 and No. 2 life insurers in Taiwan by gross premiums. Chinatrust could also try going it alone. But it is unclear if any of the other bidders would be willing to match what the Primus team offered. A new bidder could also take advantage of any sense of urgency on AIG’s part and push for a lower price, potentially costing AIG a few hundred million dollars.

Arguably, that doesn’t look too bad in the wake of the deal last week to sell off AIG’s prime Asian business, American International Assurance Ltd., for $35.5 billion to Prudential PLC. But from the perspective of the U.S. taxpayers that bailed out AIG, every hundred million dollars counts.

Write to Peter Stein at peter.stein@wsj.com

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