Nan Shan a no-go for Primus

Last week, Taiwan’s Financial Supervisory Commission blocked the Hong Kong-based consortium’s efforts after a 10-month-long process that had, in the meantime, piqued the interest of other outside players. Among these is domestic bank Chinatrust Holdings, Fubon Financial Holding Co. and former Taiwanese diplomat Wang Shih-jung, who set up a $2.5 billion company backed by Japanese and Qatari financers. These groups have separate motives for vying for the asset – those of national integrity.

“Our stepping out is the only way for AIG to fix this difficult problem, to help the Taiwan government resolve this tough issue and to prevent the two Hong Kong vultures from taking over Nan Shan,” Wang told media after announcing the incorporation of his company.

Officially, Taiwanese authorities rejected the sale of Nan Shan to China Strategic and Primus on the grounds of their inexperience in the insurance sector and qualms about their financial security, as well as their alleged ties to Mainland regulators. However, the Financial Supervisory Commission has not in any way indicated that it would prefer a Taiwanese-backed buyer. In fact, the Commission suggested that AIG, with all its financial shortcomings, keep Nan Shan unless it could come up with a more suitable buyer that would safeguard Taiwan’s interests. Nan Shan insures approximately one-sixth of Taiwan’s population.

Embattled AIG was somewhat despondent after the failed sale, saying in a statement that it was “disappointed by the Investment Commission’s decision” because it “has collaborated with the Taiwanese regulatory authorities from the outset of the sale process, and … demonstrate[d] clear support for the Nan Shan capital structure and incontrovertible commitment to the long-term health and prosperity of Nan Shan.”

AIG has not had a great deal of luck offloading assets in Asia; earlier this year it failed to sell AIA to Prudential after the $35.5 billion price tag was deemed to high by Pru’s shareholders. After this Taiwanese regulator defeat, AIG has said it will meet with Nan Shan’s board of directors and senior management to reassess its strategy.

It has not been publicly revealed whether or not more hopefuls will be able to bid for Nan Shan. One PE source who has worked on insurance deals in Taiwan told AVCJ that, in light of the ruling, opportunities for private equity involvement will be slim for several reasons. First, Taiwanese regulators adhere to specific rules regarding a company’s eligibility to purchase insurance assets; effectively a buyer must have been operational in the sector for perhaps 25 or 30 years, the source says.

In March, regulators announced that potential buyers for Nan Shan must be professionally able to run an insurer; committed to managing it over the long term; able to meet future funding needs; compliant with Taiwan’s funding and investment regulations; and ready to guarantee benefits for Nan Shan employees and policy-holders. For a PE firm to be considered, the company may only have luck if it has successfully managed another major insurance player.

But even players able to meet these terms could face further hurdles, stemming from Taiwan’s aversion to Chinese involvement in its core industries. “It’s come to a point where authorities are questioning who the LPs are. Every private equity firm these days has some sort of PRC money backing them up and regulators are going to be looking at [them] – they did this with cable-sector deals in the past, and it’s an even bigger game with deals involving their biggest financial institutions,” AVCJ’s source says. “Taiwan’s financial services sector is worried about being dwarfed by China one day, and this is one of the few instances where such high regulation can put a stop to it. It’s not going to be a surprise when China does outpace Taiwan in this area, but regulators are hoping to phase it in and, in this instance, make it much more reciprocal.”

However, private equity opportunities may still be available through alternative strategies. “It’ll be difficult for PE to play a direct role, but what firms could do is play in a consortium and pony off the back of an institution like Fubon,” the source continues. “They won’t be in control positions, but that’s not end of the world. If a PE player can take a larger stake and is able to validate why they are going into the deal, the firm can manage substantial partial control of the deal.”

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• Topics
• Greater China
• Financials
• Buyouts
• Primus Pacific Partners