Investment firm China Oceanwide has reached an agreement to buy American insurer Genworth Financial Inc. in a deal that further highlights increasing investment from Chinese companies in the U.S. economy.
The cash deal announced Monday will see the Beijing-based firm pay $5.43 in cash for each unit of the U.S. insurer’s stock, about 4.2 percent higher than Friday’s closing price of $5.21. The total value of the transaction is about $2.7 billion.
As part of the deal, China Oceanwide promised to help Genworth with its debt challenges and strengthen the company’s life insurance businesses. It will provide $600 million to enable the insurer deal with debt maturing in 2018 and will give another $525 million to bolster its life insurance units.
Genworth, one of the largest mortgage insurance companies in the U.S., has yet to recover from the financial crisis of recent memory. It was severely hurt by high rate of defaults on mortgages by homeowners following the crash in the real estate market. It was further hit hard by extremely low interest rates.
The insurer’s fortunes did not improve much following the rebound in the real estate market as a result of huge losses in its long-term insurance business, which covers nursing home stays and home-health support.
The woes confronting Genworth forced Chief Executive Tom McInerney to embark on asset sale in order to address liquidity issues.
“In acquiring Genworth and contributing $1.1 billion of additional capital, we are providing crucial financial support to Genworth’s efforts to restructure its U.S. life-insurance businesses,” Lu Zhiqiang, founder of China Oceanwide, said in a statement.
The Chinese billionaire noted that the deal is structured in manner that will enhance the likelihood of getting regulatory approval.
This transaction marks growing investment in the U.S. by the Chinese company, whose investment ranges from real estate to finance and energy. The privately-held firm, which was established in 1985, has invested hundreds of millions of dollars in the U.S. real estate market over the past two years. It has pumped money into commercial real estate in states such as California, New York and Hawaii.
As shown by Bloomberg data, the Genworth deal is the biggest yet by Lu’s company.
China Oceanwide boasts controlling stakes in more than a few companies and has a market capitalization of around $1.6 billion. It also has a 4.6 percent stake in Chinese lending giant China Minsheng Banking Corp., of which it was a founding investor.
Chinese companies are increasingly looking elsewhere to put their funds amid slowing domestic economy and weakening local currency. They have announced an estimated $207 billion in overseas deals in 2016.
Asian investors are also taking special interest in insurance companies which they consider good means of extending their reach into other businesses. Analysts say this approach gives them additional resources that can be utilized to make more future deals.
The transaction has already been approved by the boards of both companies. It is scheduled to close by mid-2017, subject to approval by regulators.
China Oceanwide said Genworth will be allowed to maintain its senior management and continue to do business as a standalone company after the acquisition.