Relevant Document:Sunac Holdings FilingTakeaways
- China Oceanwide announced on Jan. 22 that it was selling two major properties in Beijing and Shanghai for 12.55 billion RMB, or approximately $1.85 billion. China Oceanwide is hoping to close its $2.7 billion deal for Genworth Financial by Jan. 31.
- China Oceanwide has already received U.S. regulatory approval for two alternative financing plans for the acquisition, including the use of more than $1.7 billion of personal offshore funds of majority owner and CEO Lu Zhiqiang. However, under the conditions of its approval by the Delaware Department of Insurance and other insurance regulators, China Oceanwide must contribute an additional $1.865 billion to Genworth in capital by March 2020.
- The parties have received all major U.S. regulatory approvals, as well as a key approval from China’s National Development & Reform Commission. The parties are still awaiting foreign currency control approvals from two other Chinese regulators, including the State Administration for Foreign Exchange, as well as from Canadian financial regulators.
- Although the Jan. 31 termination date is quickly approaching, the parties have shown themselves willing to extend the deal in order to facilitate regulatory approvals. To date, the parties have extended the termination date seven times since the deal was announced in Oct. 2016.
China Oceanwide announced on Jan. 22 the sale of two major real estate developments in Beijing and Shanghai to Chinese real estate developer Sunac Holdings for 12.55 billion RMB, or approximately $1.85 billion. China Oceanwide is hoping to close its $2.7 billion acquisition of U.S. life and mortgage insurer Genworth Financial by Jan. 31.
Genworth and China Oceanwide have already received
all of their major U.S. regulatory approvals. Insurance regulators in Delaware, New York, Virginia, North Carolina, Vermont and South Carolina have effectively
approved two alternative financing plans for closing the deal due to heightened Chinese foreign currency controls. The original plan calls for the purchase funds to come from China Oceanwide funds located in mainland China. The
alternative plan calls for China Oceanwide’s CEO and majority owner Lu Zhiqiang to use $1.766 billion of his personal offshore funds and includes approximately $965 million coming from sources in mainland China. There is also $210 million in escrow in the United States, representing the parent termination fee, according to the merger agreement.
The Delaware Department of Insurance, or DOI,
conditioned its approval of the deal on China Oceanwide contributing an additional $1.865 billion in new capital and debt reductions by March 2020. At DOI’s Nov. 28 public hearing, the merging parties directly addressed questions regarding China Oceanwide’s cash flow and liquidity. The sale of China Oceanwide’s Beijing and Shanghai properties accounts for almost all of the amount that will be due after the deal closes.
The merging parties have already obtained a critical
approval from China’s National Development and Reform Commission, or NDRC, paving the way for the final reviews by the State Administration for Foreign Exchange. The parties also await final clearance from Canada’s Competition Bureau.
Although there appear to be few substantive issues in the remaining reviews that could pose a risk to the deal, the parties have repeatedly shown their willingness to extend the termination date to facilitate unpredictable regulatory timelines. The
extension to Jan. 31 was the seventh since the deal was announced in Oct. 2016.
Reorg M&A’s previous coverage of this transaction can be found
HERE.
--Andrew Lowenthal