American International Group Inc accepted a $2.16 billion cash offer for its Taiwan Nan Shan Life unit from a group led by local conglomerate Ruentex, marking the beginning of the end of a drawn-out process fraught with political wrangling.
AIG has been trying to sell the unit for some 15 months as part of its plans to help pay back the U.S. government for its $180 billion bailout, but regulatory issues have dogged the sale process and might yet delay it further.
The buyer group, called Ruen Chen Investment and comprising Ruentex Industries Ltd and shoe maker Pou Chen Corp, signed a deal on Wednesday for the 97.57 percent of Nan Shan that is for sale, Ruentex said in a statement to the Taiwan stock exchange.
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, said Robert Benmosche, AIG President and Chief Executive Officer, in a separate statement.
AIG had a deal worth $2.15 billion last year blocked by the regulator, citing concerns about the previous bidders' industry experience. That forced AIG to put the asset back on sale and prompted Benmosche to personally visit the regulators in December to discuss the sale.
HYPERMARKETS, SHOES AND INSURANCE
Sources have previously told Reuters that Ruentex, a major player in the hypermarket business in China and Taiwan, may not meet all of the five criteria the regulator has laid down for a buyer.
Those criteria are that any buyer needs to show fund-raising ability for future operations, a long-term commitment to run Nan Shan, experience in running an insurance business, and must promise to take care of employees and policy holders. It must have funding sources that meet Taiwan regulations. Ruentex Chairman Samuel Yin has owned and run insurance and asset management businesses in the past, but has since sold them at a profit. The regulator, seeking a long-term stable owner, in general does not approve of buying assets just for resale.
The regulators' criteria are subject to interpretation. Hence, there is still some uncertainty about this deal going through, said Sally Yim, senior analyst at the financial institutions group at Moody's Investors Service, adding that AIG is likely to have reviewed the bid carefully so would feel confident about getting it past the regulators.
The Financial Supervisory Commission, the financial regulator, said in a separate statement that AIG had communicated its choice of buyer in advance and should understand the FCS's position.
AIG moved to address concerns about the regulatory outlook, saying in its statement that the deal includes a number of commitments, including an agreement to maintain existing compensation and benefits packages for employees and the existing organisational and commission structure.
At a later media briefing it hinted at higher salaries in future and the possibility of employee share ownership.
Buyer group head Yin told the briefing that it would consider a public share offer for Nan Shan and promised not to sell the business for 10 years. Regulators have in the past suggested to AIG that it sell shares in Nan Shan.
Last week the regulators promised a quick review of any deal.
But the protracted process has raised questions over Taiwan's regulatory regime, a broader issue that has come to the attention of the main U.S. business group in Taiwan, the American Chamber of Commerce.
In a survey of its members released last week, it said that inconsistent regulatory interpretations were one area where there had not been progress in Taiwan.
Other insurers have faced regulatory hurdles in Taiwan, with Metlife's planned sale of its local unit rejected in October and Aviva's plan to exit its local venture also blocked.
Foreign firms are pulling out of a market seen as long on competition and short on profits in favor of bigger, faster growing regions.
Taiwan's insurance industry is a $52 billion market, Asia's fourth-largest, but its 30 life insurance firms had collective profits of just T$4.76 billion in 2009, the lowest since 2005, government data showed.
Moody's Yim said the sale below Nan Shan's book value reflected the fact that Nan Shan and most Taiwan insurers are hamstrung by negative spreads after they sold products with guaranteed returns when interest rates were high.
Nan Shan is Taiwan's No. 3 insurer by market share after the insurance arms of Cathay Financial Holding Co Ltd and Fubon Financial Holding Co Ltd. It has about 4 million policy holders, about one-sixth of Taiwan's population.
The Ruentex group beat local banks Cathay, Fubon and Chinatrust Financial and a consortium of Taiwan Secom and Hong Kong investment firm Primus Financial in the bidding for Nan Shan.
Citi was Ruentex Groups' financial adviser.
(Additional reporting by Rachel Lee in TAIPEI and Denny Thomas in HONG KONG; Editing by Lincoln Feast)