China Oceanwide, the would-be buyer, is a company controlled by Lu Zhiqiang. The company flourished in the early 2010s, but it ran into trouble when China began clamping down on real estate developers, in an effort to prevent those companies from taking on too much risk.
Genworth began de-emphasizing efforts to complete the China Oceanwide deal in January. Genworth said that China Oceanwide was having trouble coming up with the financing to close on the deal, partly because of the effects of the COVID-19 pandemic on negotiations, and partly because of uncertainty about how the United States might approach regulation of Chinese companies.
Tom McInerney, Genworth’s CEO, said both Genworth and China Oceanwide made good faith efforts to complete the deal.
“I would like to thank Chairman Lu for his commitment and partnership throughout this process,” McInerney said, “While we believe it is necessary and appropriate at this stage to terminate the transaction, Genworth continues to share Chairman Lu’s vision of bringing long-term care solutions to the aging population in China. Both parties believe there are significant, compelling opportunities to address critical societal needs outside of the U.S.”
Genworth has $661 million in notes maturing in September, according to Catherine Seifert, an analyst with CFRA Research. It has talked about raising cash by carrying out the partial IPO of the mortgage insurance business.
The firm’s description of its reason for terminating the China Oceanwide deal agreement raises the possibility that Genworth may have come up with an additional strategy for raising cash.
Genworth says in a “cautionary note regarding forward-looking statements” that the transactions it’s pursuing to address its near-term liabilities and financial obligations “may include additional debt financing” as well as the mortgage insurance IPO.
Seifert writes in a commentary that she expected to see the agreement terminated.
If Genworth then proceeds to carry out the partial mortgage insurance IPO, that will leave Genworth “with primarily a long-term care insurance book of business that will likely have to boost reserves,” Seifert writes.