Genworth mulls sale of Canadian arm, criticizes Ottawa for delayed merger review

Genworth Financial Inc. said it has "no choice" but to consider the sale of its Canadian arm due to a "lack of transparent feedback or guidance" from regulators regarding Ottawa's review of the U.S. company's pending takeover by China Oceanwide Holdings Group Co. Ltd.  

TORONTO — Genworth Financial Inc. said it has “no choice” but to consider the sale of its Canadian arm due to a “lack of transparent feedback or guidance” from regulators regarding Ottawa’s review of the U.S. company’s pending takeover by China Oceanwide Holdings Group Co. Ltd.

The Virginia-based mortgage insurer said on Monday it has agreed with Oceanwide to “consider strategic alternatives” for Genworth MI Canada due to the “absence of any substantive progress” in discussions with Canadian regulators regarding the review of the transaction announced in 2016.

“MI Canada is one of our top-performing businesses,” said Genworth chief executive Tom McInerney in a statement. “However, the lack of transparent feedback or guidance from Canadian regulators about their review left us no choice but to look at strategic alternatives for MI Canada that would eliminate the need for Canadian regulatory approval of the Oceanwide transaction.”

McInerney said on a recent conference call that Genworth’s discussion with Canadian regulators has centered around national security matters, including data protection.

The Office of the Superintendent of Financial Institutions, which regulates banks and insurance companies in Canada, said it is continuing its review of Genworth’s application in consultation with the Department of Finance and Public Safety Canada.

“While there is no specific time limit on the assessment of applications, OSFI endeavours to complete all application assessments as quickly as possible,” a spokesman said in an emailed statement on Tuesday.

The Department of Finance said “the examination of this transaction is still ongoing.”

“There is a rigorous approval process for changes in ownership of federal financial institutions… The assessment of each application will depend on the specific facts and circumstances,” a department spokesman said in an emailed statement on Tuesday.

Genworth and Oceanwide also agreed to extend their merger agreement to Nov. 30, 2019, from the previous deadline of June 30.

“The transaction with Oceanwide has taken longer than any of us anticipated and we owe it to our stockholders to close it as soon as possible,” McInerney said in a statement.

“However, an additional extension may be required to complete the potential disposition of MI Canada. In the meantime, we are in discussions with other regulators about the disposition of MI Canada and its impact on the overall Oceanwide transaction.”

Genworth MI Canada says it is the largest private residential mortgage insurer in the country.

Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets, said that Genworth owns 56.9 per cent of shares outstanding of Genworth MI Canada, which would translate to more than $2 billion based on the June 28 closing price.

He added that the sale of Genworth’s stake in the Canadian arm has “always been a realistic outcome” since the transaction was announced, due to regulatory hurdles and the considerable value.

Dechaine said in a note to clients he believes one or multiple large strategic or committed Canadian investors, such as pension funds or large institutional equity investors, would show interest in Genworth MI Canada.

“In addition, we believe new and existing public equity investors would show interest,” Dechaine said. “In fact, we believe many investors were awaiting this event with a view to purchase MIC at a more significant discount to its fair value than afforded by current market values”


Companies in this story (TSX:MIC)

Armina Ligaya, The Canadian Press