Fosun may face rough weather over Ironshore deal

US authorities are probing Chinese conglomerate’s takeover of the specialty insurer.

PUBLISHED : Sunday, 05 June, 2016, 9:38pm
UPDATED : Sunday, 05 June, 2016, 9:38pm

The Chinese mainland's largest private conglomerate Fosun Group said on Saturday that it was assisting US government authorities with a review of its acquisition of Ironshore, a provider of casualty and specialty insurance.

“Fosun and Ironshore voluntarily notified the Committee on Foreign Investment in the United States about their deal. Both sides are working closely with the CFIUS and providing them with all the relevant information,” Fosun said in a statement published on its website on Saturday.

CFIUS is an inter-agency committee of the US government that reviews the national security implications of foreign investments in US companies or operations and includes representatives from 16 US departments and agencies.

Media group Caixin said on Saturday that Ironshore, which was acquired by Fosun last year, is under investigation by the US government because of a liability insurance product offered to US government officers.

The report quoted a source close to Fosun as saying that the liability insurance business accounts for less than 2 per cent of Ironshore’s total premiums and though not forbidden by law, may be abandoned since it has raised the ire of US regulators.

The liability product aims to protect public officials against breaches of duty, neglect, error, misstatement or omission during the performance of their duties, Ironshore said.

Fosun officials declined to comment further.

Fosun said in November that it had completed the acquisition of Ironshore after buying the remaining 80 per cent stake that it did not own in the company. In February 2015, Fosun paid US$464 million for a 20 per cent stake in the insurer.

The current setback for Fosun comes at a time when the conglomerate, owned by Chinese billionaire Guo Guangchang, has seemingly slowed its overseas acquisition spree. Fosun made several high-profile takeovers in past years, covering a wide range of businesses spanning insurance, banking, property, fashion, baby products, food chains, entertainment and hotel resorts.

In February this year, the company backed out of a plan to buy a controlling stake in Israeli insurer Phoenix Holdings, two months after dropping out of a deal to buy German private bank BHF Kleinwort Benson Group.

Commenting on the cancellation of the Phoneix Holdings deal in February, global credit ratings agency Moody’s Investors Service said both the moves would be credit positive for Fosun, despite the agency’s negative outlook on the Chinese company.

In March, S&P Global Ratings lowered its outlook for Hong Kong-listed Fosun International, Fosun Group’s parent company, to “negative” from “stable”, citing concerns about the conglomerate’s high debt after recent acquisitions. The agency said that Fosun’s credit profile was weakened by the amount of debt taken on to fund acquisitions. S&P said it was concerned about the rise in Fosun’s debt to earnings ratio before interest, tax, depreciation and amortisation to 16.8 in 2015 from 9.1 on 2014. It also affirmed Fosun’s long-term credit rating at “BB”, two notches below investment grade.

In a Reuters report in May, Guo said the company is aiming to become a world leader in insurance, tourism and health care but also has a “clear plan” to reduce debt. Up until now the company has invested in over 50 projects overseas, with an accumulated investment of US$11 billion.