Bidders for AIG’s Taiwanese life insurance unit may offer less than the US insurer’s US$2 billion target, three people with knowledge of the matter said.
A group led by Primus Financial Holdings Ltd could bid between US$1.2 billion and US$1.4 billion for AIG’s Taipei-based Nan Shan Life Insurance Co (南山人壽), one of the people said, declining to be identified. Fubon Financial Holding Co (富邦金控) plans a US$1 billion offer, said another. Cathay Financial Holding Co (國泰金控) may bid at least US$1.5 billion, a third said.
Nan Shan, Taiwan’s second-largest life insurer, is burdened with unprofitable guaranteed-return policies it sold in the 1990s when interest rates were higher, raising concerns that a buyer may need to inject more capital, said Fitch Ratings analyst Joyce Huang (黃佳琪). AIG is selling assets to help repay US$182.5 billion of debt stemming from a US government bailout.
“It’s going to be challenging in the next two years because the negative spread issue will persist for a while,” said Huang, who has a “negative” ratings outlook for Taiwan’s insurance industry.
Nan Shan, Morgan Stanley and Blackstone Group LP, which are advising AIG on the sale, declined to comment.
AIG was rescued last year after wrong-way bets on securities tied to US subprime mortgages brought it to the brink of collapse.
Cathay Financial is bidding on its own.
Carlyle Group partnered with Fubon Financial, Taiwan’s second-largest publicly traded financial-services company. Primus Financial, co-founded by former Citigroup Inc Asia investment banking chief Robert Morse, is teaming up with China Strategic Holdings Ltd, a Hong Kong-traded battery manufacturer and trader.
By acquiring Nan Shan, Cathay Financial would dominate Taiwan’s life insurance market. It controls 25 percent of premiums and Nan Shan has an 11 percent share, said Andy Chang (張書評), a director at Taiwan Ratings, the local partner of Standard & Poor’s.
Nan Shan raised US$1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement. AIG, which owns 97.57 percent of the unit, contributed most of the money.
AIG told potential buyers in February that Nan Shan had an embedded value of about NT$55.5 billion (US$1.7 billion). That figure was revised to about US$3 billion as of May to reflect increased investment returns of Nan Shan’s stock holdings, the people said.
Yesterday, Chinatrust Financial Holding Co (中信金), the nation’s third-largest financial company by market value, also said its board had decided to bid for Nan Shan in a filing to the Taiwan stock exchange.
Chinatrust Financial also said it plans to raise up to NT$2.5 billion by issuing common shares via a private placement.
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