Genworth’s proposed acquirer, China Oceanwide, looks to be in the midst of a deep liquidity crunch. Following multiple FOIA requests, we were able to locate audits for the opaque Chinese conglomerate that show consistently negative cash flow and debt levels spiking to clearly unsustainable levels. We see almost no chance of regulators approving this deal. Doing so would hand control of Genworth’s assets to a faltering entity in a jurisdiction with limited recourse. A deep dive into Genworth’s insurance carriers show that the company looks starkly under-reserved. Our analysis indicates that Genworth’s LTC exposure is under-reserved by at least $9.9 billion. Overall we see this deal failing followed by an unwinding of Genworth. We’ve taken a significant short position in Genworth’s equity.

Bloomberg recently reported that a key Oceanwide operating subsidiary was “scrambling to sell assets to repay debt.” With another $1.6b of bond maturities due in Q1’19 we expect significant near-term instability and ultimately expect the conglomerate to unravel within 24 months. Given its liquidity issues we do not think China Oceanwide will fulfill its commitments to Genworth & its policyholders and reiterate our view that this deal looks starkly at odds with the interests of policyholders.