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Genworth's Suitor Reconfigures Real Estate Development Operations

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The Chinese company that is trying to acquire Genworth Financial Inc. says it is making major changes in its real estate development operations, in an effort to reduce debt levels and improve cash flow.

(Related: New York Approves China Oceanwide-Genworth Deal)

An affiliate of China Oceanwide Holdings Group Ltd. announced last week that it’s selling its Fanhai Construction unit to a real estate development unit of Sunac China for 12.6 billion renminbi, or the equivalent of about $1.9 billion.

Fanhai has been developing a Beijing residential, office and hotel site, and a residential and commercial development in Shanghai. The two projects could eventually create a total of about 14 million square feet in space, or the equivalent of about five new Empire State Buildings.

In related news, China Oceanwide told the Los Angeles Times that it has temporarily paused work on Oceanwide Plaza — a $1 billion condominium, hotel and shopping complex in downtown Los Angeles — while it recapitalizes the project. The company told the Times it expects to resume work on the project in mid-February.

The board of Oceanwide Holdings Co. Ltd., a publicly traded China Oceanwide affiliate, said in a Sunac-Fanhai deal announcement that they are making that deal partly because of the effects of China’s new real estate financing rules on the company’s capital turnover rate and liquidity.

The Sunac deal should reduce the Oceanwide Holdings unit’s debt, reduce pressure on the company’s cash flow, and improve overall financial stability, the Oceanwide Holdings board said.

China Oceanwide and Genworth

Genworth has been a major player in the U.S. life insurance, annuity and long-term care insurance markets, and is still a major provider of mortgage insurance.

China Oceanwide has been trying to acquire Genworth for more than two years. Genworth says the companies have received all of the approvals they need from U.S. insurance regulators but still need approvals from U.S. mortgage guarantee agencies and some other U.S. and non-U.S. regulators.

The companies have repeatedly postponed their deal completion date. At press time, the deal completion deadline was Jan. 31.

Nathan Anderson, the founder of Hindenburg Research which focuses on short research, said in an email that he does not see any formidable regulatory hurdles to the deal remaining at this point.

“The primary hurdle now is time,” Anderson said. “The longer the deal drags on, the less likely China Oceanwide will be able to fund the transaction given their upcoming bond payments and overall liquidity profile.”


A Chinese-language announcement about the sale of Fanhai Construction to Sunac is available here.

The Los Angeles Times article about the Oceanwide Plaza recapitalization effort is available here.

— Read Short-Seller Makes a Pessimist’s Case Against China Oceanwide-Genworth Deal, on ThinkAdvisor.

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