The Taiwanese government has blocked a plan by Kohlberg Kravis Roberts and the chairman of Taiwan’s Yageo Corporation to take the electronic components manufacturer private in what would have been Asia’s biggest private equity deal this year.

The rejection is a blow to Taiwan’s reputation as a destination for foreign investment, coming after a string of similar rejections or delays imposed by the government on large cross-border deals. The most notable example was AIG’s two-year attempt to sell Nan Shan, its Taiwan subsidiary, which is only now nearing completion.

KKR and Pierre Chen, who founded Yageo in 1977, in April offered T$16.10 per share, a 14 per cent premium to Yageo’s undisturbed share price, for the rest of the company.

The bid valued Yageo – the world’s biggest maker by sales of chip resistors, which control the voltage passing through a chip – at US$1.6bn.

The Investment Commission, which reviews all foreign investment into Taiwan, said that it rejected the deal because the acquirers did not give sufficient explanation as to “the protection of investors and shareholders and the fairness of the offer price”.

It also expressed concern about the company’s capital adequacy after the highly leveraged transaction, fearing that it raised the potential of default that would have “serious impact on [Taiwan’s] capital markets”.

CY Huang, chairman of the Taiwan Mergers & Acquisitions and Private Equity Council, an industry body, said the rejection would probably cause other investors to think twice about Taiwan-related deals.

Mr Huang estimates there is US$3bn-US$4bn worth of such deals in the pipeline.

KKR and Mr Chen said on Wednesday they would maintain the existing partnership and continue to invest in Yageo despite the government’s rejection, and had not decided whether to appeal.

KKR and Mr Chen have 30 days to appeal.