A consortium led by Hong Kong's China Strategic Holdings Ltd. (0235.HK) shouldn't have agreed to sell a stake in Nan Shan Life Insurance Co. before Taiwan regulators had agreed to the consortium buying the insurer, Taiwan's Financial Supervisory Commission said Friday, adding the matter complicates the approval process.
The consortium, which includes Hong Kong-based investment company Primus Financial Holdings Ltd., agreed to buy Nan Shan Life, American International Group Inc.'s (AIG) 97.5%-owned Taiwan unit, around a month ago for US$2.15 billion, but the island's Investment Commission turned down the proposal earlier this month, telling it to submit more documents.
The deal's approval by the Investment Commission is still pending, and then it will require the FSC's approval.
Earlier this week, China Strategic said it had agreed to sell Chinatrust Financial Holding Co. (2891.TW), Taiwan's largest bancassurance services provider by market share, a 30% stake in Nan Shan Life for a 9.95% stake in Chinatrust.
"The timing was wrong, and the whole arrangement was just very crude, which has put the credibility of the China Strategic consortium in question," FSC Secretary General Lu Ting-chieh said Friday, referring to the deal with Chinatrust. "It totally complicates the approval process."
China Strategic and Primus's plan to acquire Nan Shan Life has already encountered stiff opposition from Nan Shan Life's union members, who have demanded their provident funds are fully repaid.
Concerns in Taiwan that China Strategic is funding the deal with Chinese investment money--which is banned under Taiwan law--has also generated skepticism about the acquisition.
China Strategic Chief Executive Raymond Or said Thursday none of his company's shareholders hold mainland Chinese passports."
The FSC's Lu said: "If the consortium's calculation is that bringing in Chinatrust will help quell any concern about Chinese investment money being involved, the arrangement would deserve some merit.
"But again, that would set a very bad example...putting us in a 'damned if you do (approve the deal), damned if you don't' scenario," he said, meaning other companies might take it as a precedent.
Lu said the regulator plans to check with AIG if it was fully informed of the Chinatrust transaction, and whether AIG has a "plan B" should the Taiwan government reject the entire deal.
China Strategic's Or said his company plans to resubmit its application to buy Nan Shan Life to Taiwan's regulators shortly, adding he expects final approval in about three months.
AIG's New York-based spokeswoman, Lauren Day, told Dow Jones Newswires that the China Strategic consortium met the criteria set by AIG to protect the interests of policy holders, agents, employees and the people of Taiwan.
"AIG continues to work actively and closely with the regulators to achieve a successful close of the transaction...We expect that the deal will proceed according to the agreed-upon terms," Day said.
Daniel I.K. Wu, chief investment officer of Chinatrust, wasn't immediately available for comment. Vanney Cho, a corporate communications official, said the company will respect the regulator's decision.
A person familiar with the matter said AIG wouldn't object to Chinatrust's involvement, as long as the consortium's commitment to protecting the long-term interest of Nan Shan Life's agents and employees is met.
-By Perris Lee Choon Siong, Dow Jones Newswires; +8862-2502-2557; perris.lee@dowjones.com