TAIWAN'S CHINATRUST DECISION TO BUY NAN SHAN SHARES SEEMS RUSHED: FSC

Taiwan's Financial Supervisory Commission (FSC) said Thursday that the decision by a local financial holding firm to buy a stake in the recently acquired Nan Shan Life Insurance Company was not well thought out.

The decision by Chinatrust Financial Holding Co. (TAIEX:2891) shows a lack of comprehensive consideration, said FSC Chairman Sean C. Chen at a meeting of the legislature's economics and financial committee.

"The board and stakeholders of Chinatrust should not only look at opportunities but should also give some serious thought to the deal," Chen said.

Nan Shan Life Insurance Co., the Taiwan unit of American International Group (AIG), was recently sold to a consortium led by Hong Kong's Primus Financial Holdings and China Strategic (SEHK:0235).

Chinatrust, Taiwan's largest credit-card issuer, had bid to buy Nan Shan, but lost to Primus which put up US$2.15 billion for AIG's 97.5 per cent stake in the insurance company.

However, Chinatrust announced last week that it will obtain a 30 per cent stake, worth US$660 million, in Nan Shan from China Strategic. In exchange, China Strategic will take a nearly 10 per cent share of Chinatrust, at a value of about NT$20.8 billion (US$648 million), via a private placement, according to a memorandum of understanding (MOU) signed by both sides.

The MOU states that while Chinatrust will increase its stake in Nan Shan to a level that would allow the two companies to publish consolidated financial statements, China Strategic will do the same in Chinatrust, Chen noted. This means that China Strategic and Chinatrust will also publish consolidated financial statements, he added.

"This is very serious. Chinatrust might think that it has found a goose that lays golden eggs, but at the same time, it is giving more control to China Strategic," Chen said.

Consolidated financial statements are financial statements that factor the holding company's subsidiaries into its aggregated accounting figures. It is a representation of how the holding company is doing as a group.

Turning to an application by Chinatrust in September to privately place as many as 2.5 billion new shares, Chen said that the application was rejected on Nov. 24 because Chinatrust's current share prices are higher than the price of the private placement.

The application was turned because the situation has changed from Chinatrust bidding for Nan Shan to it buying a 30 per cent stake in the insurance company from China Strategic, he added.

In response to the controversy, Raymond Or, chief executive of China Strategic, said Wednesday in Taipei that the deal between his company and Chinatrust is in the best interests of Nan Shan and is also good for Taiwan's financial industry.

With the entry of the local player Chinatrust in the deal, policyholders and employees of Nan Shan would feel more secure and confident, Or said.

Established in 1963, Nan Shan is the largest life insurer in Taiwan by total book value and the third largest by total premiums, serving four million policyholders via an extensive network of 24 branches, 450 agency offices, approximately 4,000 employees, and more than 34,000 agents.