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Various real estate signs from the midtown area in Toronto, Ontario, Canada of office space for lease, houses for sale and sold.

Deborah Baic/The Globe and Mail

The battered U.S. mortgage insurance industry is getting back on its feet in part by tapping Canadian investors for $850-million, as Genworth MI Canada Inc. prepares for one of the largest IPOs this decade.

Genworth, the domestic arm of a U.S. life and mortgage insurer, set the price yesterday on a massive initial public offering that will see the company sell 44.7 million shares at $19 each, with underwriters holding an option to sell an additional $127-million of stock. If $977-million of stock is sold, this will be the largest IPO seen this year on the Toronto Stock Exchange, and the fourth-largest IPO on the TSX since 2001.

The New York Stock Exchange-listed parent, Genworth Financial Inc., is rebuilding its own balance sheet by selling a minority stake in its profitable Canadian subsidiary. Dutch insurer ING Group did much the same by selling a stake in its Canadian unit several years ago, then selling the entire company into public markets earlier this year for $2.16-billion.

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The proceeds of this share sale will be split, with $753-million going to the U.S. parent, and $97-million earmarked for paying down all outstanding debt and building the business of the Canadian unit.

As U.S. mortgage defaults mounted over the past year, Genworth Financial shares tanked, as did those of its peers. The stock plunged from a high of $37 in 2007, at the height of the U.S. real estate boom, to 84 cents in March, when the company was denied access to the Troubled Asset Relief Program or TARP bailout. Chief executive officer Michael Fraizer said at the time he would pull other "strategic levers," including asset sales.

Analysts pushed Mr. Fraizer to split the U.S. company into separate life and mortgage insurance units, and sell one line of business, to rebuild the balance sheet. Instead, he is raising money by selling a minority stake in the lucrative Canadian unit.

Where the U.S. company is struggling with an imploding real estate market and weak portfolio, Genworth MI Canada is consistently profitable, earning $322-million on revenue of $722-million in 2008, for a sky-high 17-per-cent return on equity. The company was spun out of General Electric in 1995.

In Canada, Genworth holds a 30-per-cent share in what amounts to a two-player residential mortgage insurance sector. Its only competitor of note is the Canada Mortgage and Housing Corp., a Crown corporation. Genworth Canada insures mortgages sold by 180 lenders, including the big banks. The company backs homeowners in every province, with 49 per cent of its mortgages on homes in Ontario.

CIBC World Markets, Goldman Sachs and Scotia Capital led the Genworth IPO.

Assuming the underwriters do exercise their $127-million option, which they usually do, this IPO will result in the U.S. parent owning 56 per cent of the company, and public shareholders holding a minority stake. Shares are expected to start trading on the TSX after the IPO closes on July 7.

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