Taiwan regulators suggested on Thursday that Chinatrust Financial think carefully about its plan to buy a stake in AIG's Taiwan Nan Shan unit from China Strategic.

Concerns are mounting that Chinatrust, Taiwan's top credit card issuer, could be controlled by China Strategic after Chinatrust agreed to buy a 30 percent of Nan Shan stake from China Strategic.

Under the proposed deal, China Strategic would take a 9.95 percent stake of Chinatrust via a private placement.

Chinatrust has said it could raise its stake in Nan Shan, which China Strategic and Primus Financial agreed ion October to pay AIG $2.15 billion for, while China Strategic can buy more Chinatrust shares in the next three years, upon regulatory approval.

I don't think Chinatrust has thought about this carefully, said Sean Chen, chairman of the Financial Supervisory Commission.

Chinatrust thought that buying the Nan Shan stake could bring in a golden hen for them. But at the same time, Chinatrust might be losing its control to China Strategic, Chen told reporters on the sidelines of a legislative session.

This is a very serious issue, the chairman said.

Taiwan regulators have said they were concerned China Strategic and Primus Financial are backed by China-sourced funds, complicating the approval process behind the deal. [ID:HKG225332]

Trade ties between Taiwan and China, former political rivals for decades, have eased since President Ma Ying-jeou took office last year. But Taiwan is still reluctant to fully open its markets to Chinese investors.

Officials are also worried that the consortium will not live up to its promise of owning the company for at least seven years. The heightened scrutiny of the deal is likely to delay the transaction and increase the politics behind it.

Taiwan officials could potentially strike down the acquisition, dealing a major blow to American International Group Inc (AIG), once the world's largest insurer and now 80 percent owned by the U.S. government after a multi-billion-dollar bailout.

At 0515 GMT, Chinatrust shares fell 1.7 percent in Taipei trading, while China Strategic rose 3.6 percent in Hong Kong trading.

(Editing by Lincoln Feast)

China Aig