Genworth Gets $545 Million in Australia Mortgage Insurer IPO

May 15, 2014 9:47 am ET

(Updates Genworth Financial shares in fifth paragraph.)

May 15 (Bloomberg) -- Genworth Financial Inc. raised A$583 million ($545 million) by selling a stake in its Australian mortgage insurer in the country’s biggest initial public offering this year.

Genworth priced 220 million shares in the unit at A$2.65 each, above the midpoint of a marketed range, according to a statement today from the Richmond, Virginia-based company. The sale of a 34 percent stake values the Australian business at about A$1.7 billion.

The IPO gives Richmond, Virginia-based Genworth flexibility to bolster other businesses and pay down debt. The insurer has been working to sell a stake in the unit for more than two years.

“This is an opportune time to complete the IPO,” Kenneth Billingsley, an analyst at Compass Point Research & Trading LLC, said by phone before the pricing was announced. “It’s allowing them to be opportunistic in how they want to manage their capital.”

Genworth Financial gained 17 percent this year through yesterday, beating the 2.2 percent advance in the Standard & Poor’s 500 Index. The shares slipped 1.5 percent to $17.96 at 9:43 a.m. in New York.

John Paulson, the billionaire investor, said in a letter discussing his hedge-fund firm’s first-quarter results that Genworth Financial will probably rally if the proceeds are used for buybacks and debt reductions.

The shares in Genworth Mortgage Insurance Australia Ltd. had been offered at A$2.20 to A$2.90 each, a prospectus last month showed. Goldman Sachs Group Inc. led the sale, according to the document.

Fees, Expenses

The parent company expects to receive gross proceeds of about $535 million from the offering, based on an assumed exchange rate of $0.92 per Australian dollar, according to the statement. Offering fees and expenses will probably be $30 million, Genworth Financial said.

Australia’s biggest IPO this year before Genworth’s sale was Japara Healthcare Ltd.’s offering in April, which took in A$450.4 million, according to data compiled by Bloomberg. Australian IPOs have raised A$1.4 billion this year, compared with A$495 million in the same period of 2013, the data show.

Spotless Group Ltd., a Melbourne-based cleaning and catering contractor, plans to raise A$1 billion in a listing later this month. That would be the largest Australian IPO since rail operator Aurizon Ltd.’s A$4.3 billion offering in 2010.

Genworth Financial has said it wants to build capital at operating units such as its U.S. mortgage insurer. Proceeds from the IPO of its Sydney-based business may also be used to reduce debt and improve the firm’s credit grades, Chief Executive Officer Tom McInerney said in an April interview.

Credit Rating

“We do have a priority to see a one-notch improvement in our debt rating,” McInerney said. “We are strong today, but we want to continue to get stronger.”

Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs. Genworth Financial mainly offers the coverage in Australia, the U.S. and Canada.

Genworth Financial sold a minority stake in its Canadian mortgage insurer in 2009, raising more than $700 million. Genworth MI Canada Inc. closed at C$39 a share yesterday, compared with an offering price of C$19.