* Says bid does not comply with laws on Chinese investment
* AIG will have to put the unit back on sale -analyst (Adds comment, details)
TAIPEI, Aug 31 (Reuters) - Taiwan regulators rejected AIG's AIG.N planned $2.2 billion sale of its Taiwan unit to a China-related group, citing regulations on mainland investment, and leaving the insurer facing another auction.
American International Group, needing to sell assets to pay back the U.S. government for a bailout, first agreed to sell the Nan Shan unit last October, but suspicions in Taiwan about the connections of buyer China Strategic 0235.HK with China and concern it could not run an insurance business held up the deal.
The economics ministry said on Tuesday that the deal did not comply with Taiwan’s rules on investment from its political foe China, and also noted the lack of experience in insurance on the part of battery maker China Strategic and its bid partner, Hong Kong investment firm Primus.
“It did not come as a surprise,” said an analyst at a European financial institution, who asked not to be identified.
“AIG needs to pay back money to the U.S. government so ultimately it will have to sell the unit.”
The ministry said China Strategic is able to appeal the decision within 30 days. Taiwan’s top regulator, the Financial Supervisory Commission, will hold a media briefing at 0900 GMT to talk further on the decision.
“It is reasonable that the FSC took a more cautious attitude in reviewing this case as it requires more in-depth levels of skill to run an insurance company’s finances and management,” said Susan Chu, a vice president at Standard & Poor’s in Taiwan.
AIG will find Taiwanese bank Chinatrust Financial 2891.TW waiting in the wings to bid for Nan Shan. The bank, Taiwan's top credit card firm, has repeatedly said it wants to buy Nan Shan after coming second to China Strategic in the original bid in October.
On Monday a retired Taiwanese diplomat, who said he wanted to “save” Nan Shan from mainland Chinese hands, said he was lining up a bid, backed by unnamed Japanese and Qatari investors.
AIG and China Strategic were not immediately available for comment following the decision.
China Strategic’s shares were suspended in Hong Kong after the announcement. (Reporting by Argin Chang, Faith Hung and Rachel Lee; Writing by Jonathan Standing; Editing by Ken Wills)
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