Sirius placed on Rating Watch Negative by Fitch as China Minsheng debt crisis deepens

Fitch Ratings has placed Sirius International Group's ratings on Rating Watch Negative, driven by a "deepening debt and  liquidity crisis" at China Minsheng Investment Group Corp (CMIG), which  owns approximately 80 percent of Sirius's common shares on a fully diluted economic basis.

According to the agency, the Negative Watch on Sirius's ratings reflects a near term uncertainty related to CMIG.

Fitch said its larger concern surrounds the negative implications to Sirius's competitive market position from being owned by a severely strained majority shareholder, with future ownership uncertain given the substantial doubt about CMIG's ability to continue as a going concern.

"CMIG recently announced that cross-default provisions on $800 million of its subsidiaries' bonds had been activated. Importantly, defaults by CMIG do not trigger any default provisions under Sirius's credit facilities or bonds," it added.

However, Sirius's structural safeguards as primarily insulating the company from CMIG's liquidity issues, although its corporate governance protections have not been tested under such a high stress event.

Fitch said it does not expect Sirius to remove capital from its operations to support CMIG, as the capital is better served at Sirius to maintain its ongoing (re)insurance operations. However, Fitch would view the removal of this level of capital as inconsistent with Sirius's rating expectations and would likely result in a ratings downgrade.

The agency warned that the ratings could be downgraded should Fitch view CMIG's financial difficulties as meaningfully weakening Sirius's competitive position, capitalization or financial flexibility.

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