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Short-Seller Makes a Pessimist's Case Against China Oceanwide-Genworth Deal

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Hindenburg Research — an investment research firm that makes money when the price of Genworth Financial Inc. common stock goes down — says regulators will reject efforts by China Oceanwide Holdings Group Co. Ltd. to acquire Genworth.

“This deal would be a disaster for policyholders,” the firm says in a blog article.

(Related: Genworth Reminds Analysts That GLIC Will Stand Alone)

China Oceanwide is a Beijing-based real estate development company and financial services company that announced plans to acquire Genworth in October 2016.

Genworth executives said Wednesday, during a conference call with securities analysts, that they believe that China Oceanwide has a good shot at getting the approvals needed to complete the acquisition by the end of the year.

Hindenburg was started by Nate Anderson. Anderson is also the founder and chief executive officer of ClaritySpring Inc., a hedge fund.

Hindenburg acknowledges at the top of its commentary on Genworth that it has “taken a significant short position in Genworth’s equity.”

The short position means that Hindenburg has a financial incentive to criticize Genworth. If Hindenburg can persuade Genworth shareholders to sell their shares, that could push the price of the shares lower, and push the value of the Hindenburg’s short position higher.

Hindenburg asserts, based on documents obtained through Freedom of Insurance Act requests, that:

  • China Oceanwide appears to be losing money and accumulating too much debt.
  • Genworth appears to need $9.9 billion more in reserves than it has today.
  • The Genworth deal would give China Oceanwide, a company based in China, control over Genworth’s $70 billion in assets.

If China Oceanwide had control over Genworth’s assets, policyholders would have to rely on regulators in China to make sure that Genworth paid its claims, Hindenburg says.

— Read Delaware Schedules China Oceanwide-Genworth Hearingon ThinkAdvisor.

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