AIG Postpones Taiwan Deal - Analyst Blog

On Monday, American International Group Inc. (AIG) and a Hong Kong-led consortium agreed to extend the deadline for completing the sale of AIG’s Taiwanese unit, Nan Shan Life Insurance Co. Ltd., by three months to October 2010. The consortium comprises Primus Financial Holdings Ltd., a Chinese investment firm, and a battery maker, China Strategic Holding Ltd.
 
The divestment of Nan Shan Life Insurance Co. Ltd was earlier expected to close in July, 2010. However, the $2.15 billion deal failed to comply with the regulations in Taiwan .
 
The Taiwan government strictly prohibits Chinese investment in the country for political reasons. Hence, the long term political connections of China Strategic with China increased the concerns in Taiwan. Besides, Taiwan is apprehensive about the consortium’s inadequate experience to take over such a high profile business.
 
In order to overcome some of the regulatory obstacles, AIG set aside $325 million of the purchase price in an escrow account for a four-year period, which will be utilized from time to time to enhance and maintain Nan Shan’s capital ratio of at least 200%, required by the Taiwan government.
 
Management of AIG has been planning to exit Taiwan since October 2009, after the global economic breakdown created an unprofitable investment environment and gave rise to operating challenges in Taiwan. AIG was incited to sell its stake in the Taiwan unit as it was eager to repay the government bailout money. 
 
In addition, AIG was also optimistic about selling its Asian life-insurance unit, American International Assurance (AIA), to Prudential plc (PRU). But following the collapse of the deal, AIG is looking forward to a public offering for AIA.
 
The failure to repay the bailout fund to the US government is frustrating for AIG, as the company is trying every means to repay around $132 billion that remains outstanding out of the $182.3 billion it received at the peak of the economic meltdown. However, although we do not see any significant downside regarding this issue, the Taiwan deal remains uncertain as the extension of the date questions the successful completion of the deal. We fear that the buyers might pull out of the venture if government intervention poses further hindrances.
 
Other than AIG, Prudential and Dutch financial services groups ING and Aegon pulled out of Taiwan in 2009. In April 2010, Metlife Inc. (MET) sold its insurance wing in Taiwan.
Read the full analyst report on "AIG"
Read the full analyst report on "PRU"
Read the full analyst report on "MET"
Zacks Investment Research