AIG Sells 98 Percent of Nan-Shan for 2.15 Billion

In the wake of the October 13th announcement that insurance giant AIG had sold its nearly 98 percent stake in the Nan-Shan Life Insurance Company for $2.15 billion USD to an upstart investment consortium in Hong Kong, the particulars of the deal are being greeted with questions and skepticism by both Taiwanese and U.S. observers.

Under the agreement, Primus Financial Holdings Ltd., and China Strategic Holdings would take over ownership of Nan-Shan, the second largest insurer in Taiwan with four million policyholders and more than $46 billion USD in assets.

At issue, foremost, are the principals themselves and whether any of them represent a business incursion from the People’s Republic of China. Despite the prospect of more relaxed economic relations between the island nation and the mainland, Taiwanese law prohibits Chinese investment in its financial affairs.

Robert Morse, Primus’ co-founder and former head of Citicorp Inc. Asia, has insisted that none of the consortium’s members holds a Chinese passport – a position that has not vanquished rumors that mainland investors are afoot.

“The money that we used to purchase Nan Shan came from institutional investors and wealthy, prominent families worldwide, and none of it came from China,” he stated at a Taipei news conference when the sale was announced.

On the heels of the sale announcement, the opposition Democratic Progressive Party demanded that the stakeholders be investigated, stressing that the deal should involve “zero Chinese capital.” While government officials have not commented on the China connection issue, it is they – particularly, the Investment Commission of the Ministry of Economic Affairs (MOEA) and the Financial Supervisory Commission (FSC) – who are charged with ensuring that Chinese capital is not in the mix.

That could be tricky.

At least three of China Strategic’s 27 so-called “substantial shareholders” have long and indubitable ties to the mainland.
China-born Cheung Chung Kiu is the chairman of CC Land Holdings, among other chairmanships. CC Land Holdings describes itself as “a leading property developer in western China.” Last summer, for example, the company acquired 20 percent interest in a hotel development project in Yubei District, Chongqing.

Cheung has appeared several times on the legendary Forbes list of the world’s richest persons, always listed as a Chinese national with his residence in Hong Kong.

In a 2006 announcement of Cheung’s elevation from executive director to chairman of Qualipak International Holdings Limited – the forerunner of CC Land Holdings – the company’s announcement said of Cheung, “He has a wide range of experience in investment business including approximately 15 years of experience in property development and investment in the People’s Republic of China.”

Ng Leung Ho, another “substantial” China Strategic investor, is a member of the Chinese People’s Political Consultative Conference, a political advisory group to the PRC.

Similarly, Ou Yaping, a billionaire gas supplier, is listed as a substantial shareholder in China Strategic. He has also been named on the Forbes list as Chinese.

Other major investors with China Strategic could give regulators pause for other reasons. Yan Chi Ping, Chu Yuet Wah and Chong Tin Lung have all been sanctioned by Hong Kong’s Securities Future Commission for securities violations.

Passing Muster

There are also concerns about the buyers’ financial and experiential fitness to take over Nan-Shan.

Neither Primus nor CC Land Holdings has experience in the insurance industry – they have said they will bring in an experienced partner to advise them on operations – and neither came to the table with the $2.1 billion in hand.

Primus, which opened its doors in April, is said to be arranging nearly $600 million in loans from Taiwan Cooperative Bank (TCB) and First Financial Holding Company to fund its 20 percent share in Nan-Shan. Perhaps as a function of Primus’ absence of a credit record, TCB says Primus will be charged a record high interest rate for the loans.

Meanwhile, China Strategic, which would hold 80 percent of the insurance company, has pledged $1 billion toward the sale. That means it will have to raise nearly 10 times its initial market value of $111 million. Trade reporting documents show that a week after the sale announcement, Ho sold nearly 300 million shares of China Grand Forestry Resources, a forestry management and products company he founded which has operations in both Hong Kong and the PRC.

Reportedly, at least seven other equity and investment companies had expressed interest in buying Nan-Shan and at least two had initial offers above the $2.1 billion. A source involved in the bidding said a consortium that included a Taiwanese partner offered $2.3 billion for AIG’s shares and indicated a willingness to go even higher. “And not a dime of it was Chinese money,” said the source.

AIG has said the sale will allow it to put a dent in the $80 billion it owes the U.S. government, which loaned that amount to the corporation during last year’s bailout frenzy of corporations considered “too big to fail.”
Some analysts are troubled that more lucrative deals were rebuffed.
“If there were higher bidders, I would expect that politicians and the government should be inquiring as to why they did not sell to the highest bidder,” said Ron Geffner, a partner in the financial services group at Sadis & Goldberg LLP of New York. “Secondarily, I would have loved some sort of disclosure by the acquired.“

Geffner, a former investigator for the U.S. Securities and Exchange Commission, said any major transaction by a bailout beneficiary, like AIG, begs oversight by U.S. regulators.

“One would hope that someone is managing our investments as taxpayers,” he said. “If we’re making an investment in the company and they’re selling off assets, I want someone to make sure that there’s no collusion or fraud or graft. And I want to understand that someone on our behalf has gone through the bids and objectively can justify why they sold it.”

Lax regulation in the high finance arena has been blamed for the collapse or near-collapse of major financial institutions in the U.S. over the last year. Congressional committees and taxpayer watchdog groups have called for a crackdown on corporate recipients of government loans designed to keep the companies – and the U.S. economy – afloat.
Just last week, the White House’s “pay czar” rescinded high-dollar bonuses to borrowers like AIG.

But Geffner says the public deserves full accountability.

“If the politicians failed to negotiate the right to look at someone who took our money …and not double check how the company is divesting assets, they have failed us.”