China Oceanwide furnishes evidence of funding, preserving deal to acquire Genworth

UPDATED Sept. 1 with Hony Capital involvement

Aug. 31 — Genworth Financial Inc.’s proposed merger with China Oceanwide Holdings Group Co., Ltd. survived to live another day as the Chinese conglomerate gave the long- term care and mortgage insurer assurance that it could pay for the company, according to a late evening press release.

Genworth had given China Oceanwide an Aug. 31 deadline to furnish evidence of funding for the deal.

Genworth said that its board of directors and its management team looked at what China Oceanwide had furnished as evidence to show it had the necessary funding for Genworth’s previously-agreed-upon price tag of $2.7 billion and had found the information “satisfactory.”

Therefore, it said “Genworth therefore does not intend to exercise its right to terminate the merger agreement as of August 31, 2020.” 

However, no mention was made in the release of Hony Capital, China Oceanwide’s investment partner or from where the funding is coming.

Genworth spokeswoman Julie Westermann did add the following day that the company believes “Oceanwide will pursue the same funding path that was disclosed in August 2018, whereby approximately $1B will be funded from mainland China and the balance funded by a bridge loan facilitated through Hony Capital.”

Westermann noted that the specific information that Oceanwide provided to Genworth regarding its funding progress is confidential so the company cannot we cannot share additional details now. 

The proposed merger, first announced in October 2016, before the last presidential election, had been previously extended to Sept. 30, 2020, its 15th such extension. China Oceanwide was supposed to meet the interim funding milestones by showing evidence of $1 billion of country-approved funding for the transaction plus evidence of another additional $1 billion from Hony.

Specifically, China Oceanwide was to show Genworth’s management that it had about $1 from sources in Mainland China to fund the acquisition of Genworth; and that Hony and/or other acceptable third parties had committed to provide $1 billion or more from sources outside of China to fund the transaction.

The Richmond, Va.-based company’s executives have said previously that the Hony funding commitment, first reached in 2018, only became an issue after the COVID-19 pandemic roiled global capital and financial markets beginning this past winter.

“We believe the funding is progressing well and that Oceanwide is working to close the transaction by September 30, 2020,” said James Riepe, non-executive chairman of the Genworth Board in the release. He based this on what he called regular discussions over the past few months between himself, CEO Tom McInerney and China Oceanwide.

“The August 31st milestone was important to both inform Genworth’s ongoing review process as well as provide an important update to our shareholders ahead of the September 30, 2020 deadline, particularly in light of the market disruptions driven by the global pandemic,” McInerney stated.

LU Zhiqiang, chairman of Oceanwide, said the company had been constrained by the global Covid-19 pandemic, is making progress and is committed to bringing Genworth’s “long term care insurance expertise to China and the rest of Asia”

The U.S. regulatory approvals had formerly been sewn up, subject to confirmation from the Delaware Department of Insurance that the acquisition of its life and LTC unit can go forward proceed under the existing approval. 

Genworth disclosed also today in its release that they are speaking with the federal mortgage supervisors issuers Fannie Mae and Freddie Mac, both government- sponsored enterprises, “about their previous approval of the transaction,” indicating this is not completely settled yet.

China Oceanwide also needs to receive clearance for currency conversion and transfer of funds from SAFE. 

 Genworth has also been moving forward on plans to fulfill its near-term financial obligations, which include liabilities from an announced settlement with AXA S.A. on alleged mis-selling of policies belong to its self -off business and about $1 billion of debt maturing in 2021.

Genworth announced Aug. 21that its indirect wholly-owned subsidiary, Genworth Mortgage Holdings, Inc. completed its $750 million offering of senior notes due 2025, with about $450 million of the proceeds distributed to GMHI’s direct parent, Genworth Holdings. Under its agreement with AXA, Genworth Holdings intends to repay or reduce upcoming debt maturities from the net proceeds of the senior note offering.

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