UPDATE: Taiwan Regulator: Ruenchen Must Put US$1 Billion In Custodian Account For Nan Shan Deal

Ruenchen Investment Holdings Ltd., the consortium that agreed to buy American International Group Inc.'s (AIG) Taiwan life-insurance unit for US$2.16 billion, will have to place NT$30 billion (US$1.02 billion) in cash or equivalent assets in a custodian account to show it has the financial means to run the insurer, Taiwan's financial regulator said Thursday.

The requirement is one of several conditions the Financial Supervisory Commission has stipulated in its ongoing review of the proposed deal to purchase Nan Shan Life Insurance Co. Ruenchen wouldn't be allowed to use the funds in the custodian account to pay for the acquisition.

The FSC said in a statement Ruenchen's commitment to raise NT$10 billion in capital this year, retain all of Nan Shan's employees and keep their compensation and benefit plans unchanged for at least two years, and to gradually lower Ruenchen's debt-to-capital ratio from 48% aren't enough to gain its approval.

It said Ruenchen must place all of its shares in Nan Shan in a trust for 10 years to ensure its "long-term commitment" to the insurer. Ruenchen had proposed putting 70% of the shares in a trust. Ruenchen will also have to appoint a president with a background in the insurance industry to oversee Nan Shan's operations, the FSC said.

AIG agreed in January to sell Nan Shan to Ruenchen, which comprises Ruentex Development Co. (9945.TW), Ruentex Industries Ltd. (2915.TW) and Pou Chen Corp. (9904.TW), marking the U.S. insurer's second attempt to offload the Taiwan unit and raise funds to repay the money it owes the U.S. government following a bailout during the financial crisis.

The consortium's relative lack of industry experience raised concerns at the regulator, which blocked an earlier Nan Shan sale to a Hong Kong consortium on the grounds it lacked financial strength and a commitment to Nan Shan.

Ruenchen said in a statement Friday the members of the consortium will discuss the regulator's additional requirements for the deal. It said it will "strive to come up with a response which will be acceptable to the Financial Supervisory Commission and to protect the interest of Nan Shan Life, its policyholders and employees."

-By Aries Poon, Dow Jones Newswires; 886-2-25022557; [e-mail]