Not quite ‘Groundhog Day’ again: Genworth & Oceanwide push for re-approvals amid personnel, business changes

Even as Genworth Financial, and China Oceanwide Holdings Group Co. Ltd. agree to a prolonged merger approval process with their 13th waiver and extension, state regulatory bodies continue to receive information from not only the long-term care insurer but from the Chinese conglomerate before they issue updated approval letters for the transaction.A week before year-end 2019, the companies extended the merger to March 31, 2020. Genworth’s press release noted the “passage of time since their prior approvals,” specifically citing the New York Department of Financial Services‘ annual deep dive into the LTC margins and balance sheet of Genworth’s New York subsidiary as crucial to  a deal re-approval letter from the Empire State.

At one point, before Canadian regulators quietly mulled the transaction for months amid data security concerns, the merger had all U.S. state and federal approvals in place but some have expired.

Yet, since the sweep of U.S. approvals, some things have changed: Fannie Mae and Freddie Mac and the New York DFS are now overseen by entirely different chiefs. Federal Housing Finance Agency Director, Mark Calabria was sworn in this past April. Fannie and Freddie initially approved Oceanwide’s control of Genworth Mortgage Insurance Corp. in 2018 when Obama era FHFA head, Mel Watt, was the director. And in New York, state DFS Superintendent, Linda Lacewell took on her role — at first in an acting capacity — in February, a month after then-insurance commissioner Maria Vullo had approved the Genworth-Oceanwide deal.

The Dec. 23 press release referring to the extension doesn’t specifically mention Genworth’s domiciliary jurisdiction of Virginia and its ongoing review or other states such as Delaware and North Carolina who formerly have granted approval. Genworth did state back on Oct. 29 that “other regulators are still reviewing the supplemental information to determine whether it has any impact on their existing approvals.”The Virginia State Corporation Commission’s spokesperson said via mail in early December that he could not “speculate on timing nor confirm the nature of ongoing discussions with Bureau staff.”There was no clarification offered about the nature of these ongoing talks or the change in conditions and whether they centered in whole or part on the sale of the stake in the Canadian mortgage subsidiary, Oceanwide’s own financial position given the passage of time or LTC business reviews. However, attorneys for Oceanwide have written of their appreciation of the time and help given by staff of the SCC and the Bureau of Insurance  it houses during “the review process” as part of their communications with the regulators.Ken Schrad, director of the Division of Information Resource for the SCC did acknowledge earlier this month that the merger is “still an open matter with the Bureau. Ultimately, there will need to be another letter from Commissioner [Scott A.] White since the conditions have changed since the approval letter of 1/11/2019.”A few days before the merger extension announcement, Oceanwide filed with through its Virginia law firm unaudited semi-annual financial statements for the six months ended June 30, 2019, for China Oceanwide Holdings Group Co., Ltd. and Oceanwide Holdings Co., Ltd. These Dec. 20 filings add to the existing record updated financial and organizational structure filings submitted in November and earlier in December. The balance sheets are extensive and detail the myriad parts, subsidiaries and offshoots of the conglomerate, as does the organization chart. Oceanwide Holding Company Ltd., for instance, appears to show on the first exhibit of its consolidated balance sheet a decrease in assets and liabilities from December 2018 to June 30, 2019 of about $4 billion, to about $26.8 billion.

Another chart attributed to the balance sheet for the “Parent Company’s Income Statement” shows-$52,764 million in total comprehensive income with some operating losses, although it is unclear how this relates to the Oceanwide Holding Co. Ltd. balance sheet. It is but one hundreds of entries on the voluminous ledgers provided for various businesses held by the holding company. 

The parent company is China Oceanwide and the ultimate controlling shareholder is Tohigh Holdings Co., Ltd. The ultimate controller is billionaire and founder Lu Zhiqiang, who has stated he remains committed to the deal.The Beijing, company has real estate, financial services, energy, technology information services, and media businesses around the world.

Genworth has stated in previous federal securities filings that if the deal doesn’t go through, it would consider ways to protect its U.S. mortgage insurance business with a partial sale of this unit to relieve any ratings pressure.   

The Richmond, Va.-based insurer also has said that under a bond consent solicitation in October 2018, the company changed its senior notes indenture to “clarify” that its life insurance and long term care insurance subsidiaries are excluded from those subsidiaries for which an insolvency would result in a default with respect to certain outstanding senior notes. 

After the U.S. approvals are granted, Oceanwide still needs the Chinese government’s okay for currency conversion and transfer of funds. It has been over three years since Genworth Financial agreed to accept the merger bid from China Oceanwide to acquire it for $2.7 billion, or $5.43 per share. Additionally, China Oceanwide and/or its affiliates agreed to contribute $1.5 billion to Genworth in a “capital investment plan.” The money, granted over time by the acquirer, would be used to “improve our financial stability, which could include retiring debt due in 2020 and 2021 or enabling future growth opportunities,” Genworth has previously stated.

Meanwhile, in Los Angeles 

China Oceanwide’s attempted venture into another U.S. business interest, real estate, is also undergoing a prolonged saga slowing its progress toward completion.

Oceanwide noted in one of its filing that it had two newly established subsidiaries this year and five that were canceled. These subsidiaries are Oceanwide Plaza businesses, a billion dollar complex which are still under construction, which has been halted in fits and starts, according to press reports, in Los Angeles. Information on the Plaza’s  LinkedIn page hasn’t been updated in a couple of years. 

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China Oceanwide explained the litigation and provided updates involving the project in Part 4 of its Virginia SCC Dec. 20 insurance bureau regulatory filing.

A subcontractor sued the Plaza project and the general contractor in Los Angeles County Superior Court in January 2019 with a construction lien of $52.9 million. The registered construction lien is now $60.3 million after a change of appeal, Oceanwide wrote. Arbitration had been rejected by the court, it said. Oceanwide has since appealed to the California Courts of Appeal in order to shake the lien and settle.

The company “is ready to actively defend, continuing to register the cancellation of the lien security and remove all legal rights from the property right of the Oceanwide Plaza project. At the same time, it also seeks to negotiate and settle disputes,” it wrote in the filing. 

 

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