Sirius placed on ‘evolving watch’ as Chinese parent launches formal process to find a buyer

Fitch Ratings has revised the rating watch for Sirius International Group to "evolving" from "negative" citing concerns over its ability to successfully execute a sale in the current volatile market conditions. The move follows the announcement by its parent China Minsheng to sell the company.

Sirius confirmed March 27 that it has launched a formal process to sell the company in collaboration with its majority shareholder, China Minsheng Investment Group, which own 96 percent ownership of Sirius's common shares.

Earlier this month, Fitch placed Sirius's ratings on rating watch negative due to near-term concerns following a dispute with CMIG regarding Sirius's ability to execute on a planned rights offering that would increase its public float and enhance its capital position. This disagreement raised questions regarding corporate governance standards that Sirius has in place as a Nasdaq publicly listed company.

Fitch said that dispute has effectively been resolved with this coordinated sales process. However, the Evolving Watch reflects uncertainty regarding the credit quality of any new potential owner and an assessment of Sirius's strategic importance to the new owner. Fitch also expressed concerns over Sirius's ability to successfully execute a sale in the currently volatile crisis market environment.

"Sirius's ratings include a one-notch lower adjustment due to CMIG's ownership since it purchased the company in April 2016, and thus a new owner could increase Sirius's ratings," it said. "A sale to an entity whose credit quality is in line with, or better than, Sirius, which results in CMIG no longer being the majority owner, could lead to an upgrade," it added.

Prior to the Rating Watch Negative, Sirius's ratings were on "Negative Outlook" since December 2019 due operating performance deterioration in recent years.

Additionally, Fitch said that it is also in the process of reviewing its insurance company ratings related to the significant uncertainties created by the onset of the global coronavirus pandemic. As per its early assumptions, declines are expected in the market values of stocks, bonds, derivatives and other capital market instruments typically owned/traded by insurance companies; market liquidity; interest rate levels and the magnitude of coronavirus-related claim exposures.