Genworth parent mulls US mortgage IPO after China merger stalls

Genworth shares hit as parent considers partial IPO of US mortgage insurance business after China merger is put on ice.

Genworth Financial’s lengthy battle to merge with China Oceanwide Holding Group looks to have fallen over. Photographer: Xaume Olleros/Bloomberg

Genworth Financial, the US-based parent company of Genworth Mortgage Insurance Australia, will explore a partial IPO of its US mortgage insurance business as part of a contingency plan after its merger with China Oceanwide Holdings Group was put on ice.

In an update, Genworth said the December 31 deadline to complete the transaction with Beijing-based China Oceanwide was not extended.

The $US2.7bn ($3.5bn) takeover, first lobbed at Genworth by the privately-owned Chinese group in 2016, had previously faced lengthy delays and had been extended on 16 occasions. The last extension was agreed on November 30.

Genworth shares tumbled on the news in Monday trade on the NYSE, plunging 29 per cent to $US2.69 by the end of the session.

Locally, Genworth Australia’s shares also took a beating, diving 6.1 per cent to $2.33 by the close of trade.

“Oceanwide has indicated that the factors contributing to the delay since the parties agreed to their most recent extension … were: (a) the finalisation of the Hony Capital financing terms; and (b) the COVID-19 pandemic and associated restrictions,” Genworth told the market.

While the transaction had received all necessary US regulatory approvals, part of the financing for the deal was to come from Chinese private-equity firm Hony Capital.

While the deadline was not extended past December 31, the merger agreement remained in effect, Genworth said.

“Oceanwide has shared that it will continue to work towards closing the transaction, and Genworth remains open to completing the transaction if Oceanwide completes the remaining steps,” the mortgage insurer said.

“While we are disappointed that we could not close the transaction by the end of 2020, the parties retain the ability to ultimately complete the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to closing, and if the transaction is still in the best interests of Genworth at that time,” Genworth chief executive Tom McInerney said.

In the meantime, Genworth will shift its focus to executing its contingency plan to meet its near-term liabilities of $US1bn of debt due in 2021.

The contingency plan includes exploring a partial IPO of its US mortgage insurance business. But it would be subject to market conditions “as well as the satisfaction of various conditions and approvals”, Genworth said.

“The contingency plan also addresses the need to further align the company’s expense structure with its business activities,” the company added.

Genworth has already sold its Canadian mortgage insurance business as part of its contingency plan put in place in case the Oceanwide deal fell over.

The Canadian business fetched $US1.8bn in December 2019. It also completed a $US750m debt offering at the US mortgage insurance holding company level in August 2020 and settled a litigation case with AXA in July 2020.

Genworth Australia on Tuesday said it was not a party to the merger agreement, as it was a stand-alone subsidiary of Genworth Financial and that it did not expect the transaction update would have any material implications on its business.