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Mortgage insurer Genworth Financial Inc. is considering spinning out its large Canadian subsidiary after Ottawa raised national-security concerns about a sale of the entire company to a Chinese conglomerate.

Early Monday, Richmond, Va.-based Genworth and its privately held suitor, China Oceanwide Holdings Group Co. Ltd., announced they have “decided to consider strategic alternatives” for Genworth MI Canada Inc. The Canadian division was partly spun out in an initial public offering in 2009, but remains controlled by the U.S. company.

Genworth MI Canada is currently the country’s second-largest mortgage insurer behind the federal government’s Canada Mortgage and Housing Corp.

In a statement, Genworth said the decision is the “result of the absence of any substantive progress in discussions on the transaction with Canadian regulators. The parties have repeatedly inquired of the Canadian authorities regarding the status of their review, but to date have not received any substantive guidance or likely timeframe for the completion of their review.”

Genworth and Oceanwide also agreed to extend the deadline for their US$2.7-billion deal for the 11th time to Nov. 30. The previous deadline was June 30.

The potential sale of the division illustrates Genworth’s frustration with Ottawa and the federal banking watchdog. The company has previously said Canada is studying the deal on national-security grounds, leaving Ottawa as the holdout in a lengthy cross-border merger review.

“MI Canada is one of our top-performing businesses. However, the lack of transparent feedback or guidance from Canadian regulators about their review left us no choice but to look at strategic alternatives for MI Canada that would eliminate the need for Canadian regulatory approval of the Oceanwide transaction,” Genworth chief executive Tom McInerney said in a statement. The company declined to provide further comment.

While Genworth has already obtained numerous approvals for the deal, including from the Committee on Foreign Investment in the United States, (CFIUS) the company still needs Ottawa’s approval because of the Canadian division’s ownership structure. In Canada, banking and insurance watchdog Office of the Superintendent of Financial Institutions (OSFI) is administering the process and will make a recommendation to the federal Finance Minister.

OSFI said it was continuing its review of the proposed transaction in consultation with the Department of Finance and Public Safety Canada. “While there is no specific time limit on the assessment of applications, OSFI endeavours to complete all application assessments as quickly as possible,” OSFI spokesman Gilbert Le Gras wrote in an e-mailed statement on Monday.

Officials with the federal government, meanwhile, didn’t immediately return a message seeking comment for this story.

Canada’s national-security review is happening at a time when Ottawa is managing a number of sensitive files pertaining to China. Notably, the federal government is weighing whether to bar Huawei Technologies Co. Ltd. from providing equipment for Canada’s 5G telecommunications network. The United States has asserted that Huawei is a national-security risk and a pawn of the ruling Communist Party, and has cited numerous concerns about privacy and spying concerns.

Canada is also caught in the middle of a trade war between the United States and China – a situation that was exacerbated after Canadian authorities arrested Huawei chief financial officer Meng Wanzhou, the daughter of Huawei’s founder, at the request of U.S. law-enforcement authorities while she was transiting through Vancouver in December.

Genworth currently owns 57 per cent of the Canadian subsidiary, which trades on the Toronto Stock Exchange. Under an agreement with its Chinese suitor, Genworth said Oceanwide will have the right to accept or reject the terms of any sale of the Canadian arm. If Oceanwide rejects the terms, the parties will each have the right to scrap Oceanwide’s purchase of Genworth.

Genworth MI Canada went public in June, 2009, at $19 a share in one of the first big Canadian deals coming out of the 2008 financial crisis. The company’s stock closed at $41.44 on Friday, the last day of trading before the Canada Day weekend. The Canadian company reported a $452-million profit in fiscal 2018.

Oceanwide’s acquisition of Genworth was first announced in October, 2016, after Genworth’s stock had dropped 72 per cent over the two years prior, largely because of losses on long-term-care insurance.

Oceanwide needs approvals from numerous bodies to complete its acquisition. Nearly three years after the deal was announced, the United States has signed off, with CFIUS giving its approval in 2018, but Ottawa has not.

In 2018, Canada blocked a Chinese acquisition for national-security reasons. The federal cabinet prohibited the sale of construction company Aecon Group Inc. to China Communications Construction Co. Ltd., a state-owned enterprise, after accepting the findings of a national-security review that determined the deal was not in Canada’s national-security interest.

To allay Ottawa’s security concerns, Genworth has said it proposed a similar mitigation agreement to the one approved by CFIUS. In the U.S., Genworth will use a U.S.-based, third-party service provider to manage and protect the personal data of its U.S. policyholders.

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