Price, Union Threaten AIG’s Taiwan Unit Sale

TAIPEI/HONG KONG (Reuters) – A rich asking price could once again sink AIG’s (AIG.N) plan to sell its Taiwan insurance unit after an attempt at a sale earlier this year met a similar fate.

American International Group, once the world’s biggest insurer before the U.S. government had to bail it out last year, is seeking about $2 billion for Nan Shan Life, likely its most expensive asset for sale in Asia.

But some potential buyers say the Taiwan unit’s net assets could be worth as much as 40 percent below the T$100 billion ($3 billion) that AIG claims, sources told Reuters.

As the August 28 sale deadline nears, bidders are re-evaluating the situation and some could walk away due to disagreements over the price and lack of information provided by the seller, said financial industry sources in Taiwan and Hong Kong.

“Lots of people looked at Nan Shan and many of them walked away,” said one of the sources. “Some decided to bid while now even those bidders want to have a second thought – there must be a reason behind that.”

In June, the Nan Shan sale initially attracted more than a dozen potential buyers including leading U.S. firm JC Flowers but less than half of them decided to go forward with a formal bid.

“The visibility is low,” said another source, referring to the financial information AIG had offered at the request of some private equity firms over the last few days.

Last month, two U.S. buyout funds — the Carlyle Group and Bain Capital — were selected by AIG and Taiwan regulators to enter the second round of bids.

Carlyle is partnering Fubon Financial (2881.TW), parent of Taiwan’s No.2 insurer, while Bain has teamed up with Chinatrust Financial (2891.TW), Taiwan’s top credit card issuer, for the bid.

“There is a 50 percent chance the bid will fail, or AIG will have to lower its asking price,” said an analyst at a European securities house in Taiwan, who sought anonymity as he was not authorized to speak to media.

Primus Financial, a new firm led by former top Citi (C.N) banker for Asia, Robert Morse, also made it to the second-round and has teamed up with Hong Kong investor China Strategic (0235.HK) to fund its bid.

Cathay Financial (2882.TW), the parent of Taiwan’s biggest insurer, is also in the race and the only one bidding by itself.

The second-round is believed to be the final one, and a winner will be selected next week, said the sources who declined to be identified because the bidding process is confidential.

Nan Shan, which turned a profit in the first half of this fiscal year after a loss of T$46.7 billion ($1.4 billion) last year, declined to comment on the bidding process.

REGULATORY HURDLE, UNION TROUBLE

AIG isn’t the only one looking for a high price for Nan Shan.

Taiwan’s financial regulator is also aiming to keep Nan Shan’s price high, concerned about a negative backlash if people think the asset is being sold at a fire-sale price, said another source.

Media and scholars in nearby mainland China have criticized Beijing for selling stakes in state lenders like China Construction Bank (601939.SS) (0939.HK) too cheaply to foreigners who later reaped big profits after selling their stakes.

“The Taiwan regulator doesn’t want to copy the history that its counterpart in mainland China did,” said the source.

“In this case, it’s not just about AIG. If you sell Nan Shan too cheaply today, tomorrow people will say the whole Taiwan financial system is cheap, having Nan Shan as a benchmark deal,” he added.

For their part, potential buyers also have an interest in talking down the value of the company ahead of any sale.

Potential buyers could also be scared off by other issues.

Nan Shan’s union, in front-page newspaper advertisements last week, strongly demanded that AIG settle the pension obligations they’ve accumulated over the past decades.

A victory for the union in the pension battle would make that liability either too difficult or too high to estimate, forcing some bidders to reconsider the fair value of the company.

Nan Shan’s union includes up to 40,000 sales agents, the second-biggest in the island’s insurance market.

“This is a major uncertainty and tough issue. We have to figure it out clearly,” said a source with one of the domestic insurers, which is jointly bidding for Nan Shan with a foreign fund.

($1=T$33.0)

(Reporting by Faith Hung and George Chen; Editing by Doug Young and Mathew Veedon)