Primus consortium to buy Nan Shan Life Insuranceáfrom AIG

The $2.15 billion sale of the Taiwanese insurer gives AIG additional cash to pay back the US government, while Primus gets a start in the insurance industry.

American International Group (AIG) yesterday announced that it has agreed to sell its 97.57% stake in Taiwan's Nan Shan Life Insurance to a consortium made up of Primus Financial Holdings and China Strategic Holdings for $2.15 billion. The sale is the largest so far in Asia by the debt-ridden US insurance group, which is still saddled with $86.3 billion of government bailout money.

With total assets of more than $46 billion, Nan Shan is Taiwan's largest life insurance company by book value. It was established in 1963 and currently has 7.9 million policies held by 4 million people. In 2008 it had an 11.4% share of Taiwan's life insurance market, according to consultancy group Celent. Its most valuable asset is said to be its large sales force.

"We aim to develop Nan Shan into a leading Taiwan-based, pan-Asian financial services company," said Robert Morse, chairman and co-CEO of Primus, in a written statement. "Nan Shan's management team, agents, and employees are an integral part of this vision." Presumably to ensure it can keep hold of these employees, the buyer has agreed to maintain the Nan Shan brand, as well as current compensation levels for the insurer's staff for at least two years. Nan Shan's management team will also remain unchanged.

Nan Shan will be owned by a holding company in which China Strategic owns 80% and Primus the remaining 20%. The deal is subject to regulatory approval and will be partly funded by a placement of convertible bonds (CBs).

Primus was established earlier this year by Morse, the former CEO for Citi's Asia-Pacific institutional clients group, together with Huan Guocang and Wing-Fai Ng. Huan and Morse share the position of chairman at Primus, while Ng and Morse are co-chief executive officers. Huan, Morse and Ng were colleagues at Salomon Smith Barney and Citi in Hong Kong during the nineties.

An independent financial services investment company that started out in April with $1 billion of capital from one ultra-high-net-worth investor, Primus is working towards creating a pan-Asian financial institution made up of insurance, banking, brokerage, advisory and wealth management businesses. Nan Shan provides a solid foundation for the insurance arm of the envisaged company. 

China Strategic is a Hong Kong-listed investment firm, which also has a business manufacturing and trading battery products and related accessories. On July 15, China Strategic informed its shareholders that it had entered into a non-binding memorandum of understanding with Primus to submit a bid for Nan Shan. On August 20, China Strategic announced that it had mandated Kingston Securities for a proposed placement of HK$7.8 billion ($1 billion) worth of convertible notes. The net proceeds of HK$7.6 billion from the placement will be used to pay AIG for the acquisition of Nan Shan. The remainder of the money will come from loans and capital provided by Primus.

The Nan Shan deal "represents a unique opportunity for [China Strategic] and is also potentially beneficial to enhance its shareholder value", China Strategic told shareholders while announcing its first-half results in September.

By securing the winning bid, the consortium has seen off a number of competitors -- the main one being Taiwan financial group Chinatrust, which was looking to raise NT$44.3 billion ($1.4 billion) through a rights issue, to part finance its bid.

AIG is in the process of divesting assets in order to pay back the bailout money it received from the US government last year. Last month, Pacific Century Group, the business group controlled by Hong Kong's Richard Li, bought the investment advisory and asset management part of AIG Investments, a subsidiary wholly owned by AIG, for $500 million.

The sale of Nan Shan is the single largest exit made by AIG globally since it started the sell-off, exceeding the $1.9 billion sale of automobile insurer 21st Century Insurance to Zurich Financial Services, which was finalised in July. AIG's other Asian assets up for sale include American International Assurance (AIA), which is due to be spun off in a separate listing on the Hong Kong exchange in the first quarter of 2010. The initial public offering is expected to raise several billion dollars.

Aside from being involved in Primus Financial Holdings, Huan and Ng are also founders of private equity firm Primus Pacific Partners (PPP), which was created in 2005 to invest in financial services companies. PPP was in the news in 2007 in connection with a keenly contested battle for a 33% stake in Malaysia's RHB Bank, which was put on the block by Utama Banking Group. The transaction took many turns and finally ended with Malaysia's Employees Provident Fund (EPF) buying the RHB shares.

Last year PPP acquired 20.2% of Malaysia's Eon Bank Group for M$1.34 billion ($395 million). Huan and Ng are currently on the board of Eon's holding company Eon Capital.

PPP, which is fully invested, also owns a stake in New China Life Insurance, the fourth largest life insurance company in China.

Before founding PPP, Ng headed Fubon Financial, one of the largest financial services conglomerates in Taiwan, which has a presence in banking and insurance. Ng's experience in Taiwan may be one of the reasons the consortium bid so aggressively and is confident of creating value at Nan Shan.

Regulatory approvals for the deal have not yet been received and Celent analyst Wenli Yuan highlights this aspect. Media have earlier reported that regulators in Taiwan were more favourably disposed towards a bid that included a Taiwanese local partner and other bidders, including private equity firm Carlyle, had scrambled to tie up with local firms.

Primus was advised by Deutsche Bank, Simpson Thatcher & Bartlett and LCS & Partners. Nan Shan was advised by Blackstone Advisory Partners and Morgan Stanley, with legal advice from Debevoise & Plimpton and Lee & Li.  

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