American International Group’s (AIG) second attempt to divest its Taiwanese insurance unit, Nan Shan Life Insurance, still has a long way to go before it is accepted by regulators, although both AIG and the new buyer appeared confident that they will obtain approval this time.
On Wednesday, AIG announced it would sell its 97.57 percent share to Ruen Chen Investment Holding, a Ruentex Group-led consortium, for US$2.16 billion. Coming less than five months after AIG’s previous attempt to sell Nan Shan hit a snag, the latest deal signals the US company’s urgency to pay back its US government bailout, because the new sale price is similar to the US$2.15 billion offered by a Hong Kong consortium the first time around, but less than several of the reported bids in the second sale.
However, is it possible that AIG might again have failed to address the financial security concerns of local regulators by choosing a similarly risky candidate as it did in the first sale?
Given the Financial Supervisory Commission’s “five principles” relating to whoever wants to acquire Nan Shan — protecting the rights of existing Nan Shan policyholders and employees, a long-term commitment, a good track record of running an insurance business, sound capital-raising ability and legal sources of funding — many people are questioning Ruen Chen’s experience as an insurance operator, the business practices of its major stakeholders and possible political connections to China.
In the first sale attempt, the commission said it rejected the Hong Kong consortium’s application to buy the 40-year-old Nan Shan because of concern about the consortium’s financial strength and long-term commitment. However, following media reports that Chinese investors and funds might be involved in the deal, it was clear that the consortium’s shareholder structure and its source of funding were what worried regulators the most.
As for Ruen Chen — which is an investment consortium 80 percent owned by Ruentex Group that has business interests ranging from textiles and construction to retail, and is 20 percent owned by footwear maker Pou Chen — it not only lacks insurance--related experience and expertise, but also just came into existence as a registered company less than two months ago with NT$2.5 billion (US$86.2 million) in paid-in capital.
Moreover, as a newly established company, Ruen Chen has raised people’s eyebrows by acquiring an insurer that as of the end of September last year had a net value of as much as NT$169 billion. No wonder Ruen Chen has planned to raise its capital to NT$60 billion and borrow up to NT$32 billion from local banks to fund this acquisition.
To ensure a regulatory green light, Ruen Chen has promised to retain Nan Shan for at least 10 years, maintain the existing compensation and benefits package for employees and the existing organizational and commission structure. However, the unsettled disputes between Nan Shan’s union and the insurer’s management regarding whether there is an employment relationship between Nan Shan insurance agents and the firm will remain an issue for any new buyer.
Another worrying sign about the deal relates to allegations of political interference. Since last month, opposition lawmakers have been accusing top government officials of behind-the-scenes involvement to make it clear to AIG that they supported Ruen Chen as the preferred bidder.
With all these questionable issues surrounding the sale of Nan Shan — which is the third-largest local insurer by total premiums, serving 4 million policyholders with 4,100 employees and 33,000 agents — all eyes will be on the regulatory review, and the longer the review takes, the more dire the suspicions and concerns will become.
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