TAIPEI: Morgan Stanley's private equity fund pulled out from bidding for American International Group Inc's Taiwan unit before the first offers were due at the end of this month, three people familiar with the matter said.

The withdrawal from the bidding group led by Chinatrust Financial Holding Co was influenced by a perceived conflict of interest with Morgan Stanley's advisory role for the New York-based insurer, and by funding costs, one of the people said, asking not to be identified because the matter is not public.

Morgan Stanley is one of AIG's advisers on the sale of Nan Shan Life Insurance Co, which could fetch $2 billion, two of the people said. The bank's departure leaves Bain Capital LLC and Oaktree Capital Management LLC in the group, bidding against rivals including Carlyle Group, which joined Fubon Financial Holding Co. Potential buyers have been asked to submit binding offers on August 28.

Nick Footitt, a Hong Kong-based spokesman at Morgan Stanley, declined to comment. Daniel Wu, a Taipei-based spokesman at Chinatrust, couldn't be immediately reached for comment. April Pan, a Taipei-based spokeswoman at Nan Shan, declined to comment on the sale.

Morgan Stanley, which owns 4.8 percent of Chinatrust, won approval in June to boost the stake to 9.9 percent through its Asian private equity unit. The private equity unit dropped out after rival bidders raised concerns its bid may conflict with the bank's role as AIG's sale adviser, the people said.

Blackstone Group LP is also helping manage the sale of Nan Shan, which is Taiwan's second-biggest life insurer, people familiar with the matter said.

Cathay Financial Holding Co, Taiwan's largest publicly traded financial-services company, is bidding on its own, people familiar with the deal said last month. China Strategic Holdings Ltd said on July 31 it joined Primus Financial Holdings Ltd in a bid for an insurance company on the mainland.

Nan Shan has 4 million policy holders and an 11 percent market share in terms of premiums. Burdened with unprofitable policies, it raised $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement. AIG owns 97.57 percent of the unit and Nan Shan's management holds the rest.

Bloomberg News

(HK Edition 08/19/2009 page2)