Morgan Stanley’s private equity fund has pulled out of bidding for American International Group Inc’s (AIG) Taiwan unit, three people familiar with the matter said.
The fund pulled out of a bidding group led by Chinatrust Financial Holding Co (中信金控). The decision was influenced by a perceived conflict of interest with Morgan Stanley’s advisory role for the New York-based insurer, and by funding costs, one of the people said, asking not to be identified because the matter is not public.
Chinatrust Financial’s chief investment officer, Daniel Wu (吳一揆), yesterday declined to comment on Morgan Stanley’s withdrawal.
But during a media briefing earlier yesterday, Wu said the company was “capable” of running Nan Shan Life Insurance Co (南山人壽), which has 4 million policyholders and an 11 percent market share in terms of premiums.
“I am sure we’re capable of managing the life insurer, but I can’t reveal whether we want to,” Wu said.
Wu’s remark implied a change in the company’s stance over the Nan Shan bid after its chairman Jeffrey Koo (辜濂松) and vice chairman Charles Lo (羅聯福) previously affirmed the company’s interest in the life insurer.
Morgan Stanley is one of AIG’s advisers on the sale of Nan Shan, which could fetch US$2 billion, two sources said.
The bank’s departure leaves Bain Capital LLC and Oaktree Capital Management LLC in the group, bidding against rivals including Carlyle Group, which joined Fubon Financial Holding Co (富邦金控), they said.
Potential buyers have been asked to submit binding offers on Aug. 28, one of the sources said.
BNP Paribas on Monday downgraded its rating on Chinatrust Financial and cut the stock’s target price to NT$15.9 from NT$18.40 on concerns that Nan Shan could be too big for Chinatrust Financial.
Shares of Chinatrust Financial dropped 2.78 percent to close at NT$19.25 yesterday.
There is an increasing risk of overpayment in Chinatrust’s bid for Nan Shan, BNP analyst James Wu (吳永新) wrote in a client note.
A request by the insurer’s labor union for between NT$10 billion and NT$15 billion in pension-fund repayment is adding to potential buyers’ uncertainty, the note said.
Meanwhile, Chinatrust Financial yesterday said it was aggressively seeking to upgrade its Beijing-based liaison office into a subsidiary in Shanghai once Taiwan and China ink a memorandum of understanding on the financial market.
“We’ve decided first to tap into Shanghai markets and have prepared all the necessary documents for our application,” Daniel Wu said.
If domestic banks are also permitted to acquire shares directly in Chinese banks, the company will consider doing so, he said.
Chinatrust Financial’s net profit dropped 96 percent year-on-year to NT$353 million for the first six months of this year, after the company said on Aug. 4 it would set aside NT$4.1 billion to compensate investors for troubled structured notes, including those issued by Lehman Brothers. Its US branch set aside US$56.45 million to make up for the reduction of deferred tax assets.
Looking ahead, he said the company was “cautiously optimistic” since its corporate clients have order visibility for the fourth quarter.
Nevertheless, Chinatrust Financial maintained its forecast that the domestic economy could contract 4.1 percent this year, he added.
But Renee Yang (楊文靚), an analyst at Yuanta Securities Corp (元大證券), expressed concerns over the company’s prospects, saying she believed the company had not set aside enough funds for settlement of structured notes.
Rival companies have set aside funds equivalent to 30 percent or more of their sales of Lehman Brothers-issued structured notes, Yang said, adding that Chinatrust Financial should set aside at least NT$5 billion for its NT$16.6 billion in sales.
“The financial service provider may have to write off more losses in the future, although its share price already reflects the bad news,” she said.
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