Liquidity crisis at China Minsheng puts Sirius on negative rating watch

Uncertainty brought on by the deepening debt and liquidity crisis at China Minsheng Investment Group (CMIG) has resulted in Sirius International Group being placed on rating watch negative by Fitch Ratings.

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

The ratings agency’s larger concerns surround the negative implications to Sirius’ 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 owns approximately 80 percent of Sirius’ common shares on a fully diluted economic basis. The company’s liquidity to repay debt is hampered by several asset freeze orders, although none are within Sirius. Furthermore, CMIG has set up a special management committee to resolve its liquidity difficulties

Fitch noted there are no guarantees, keepwells, loans or other financial arrangements between Sirius and CMIG, and Sirius has not provided any credit support with respect to any obligations of CMIG. It also 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.

The Bermuda Monetary Authority (BMA), Sirius's group supervisor, does provide significant dividend flexibility for operating companies to pay up to 25 percent of earned statutory surplus without prior BMA approval, Fitch added. The ratings agency, however, would view the removal of this level of capital as inconsistent with Sirius's rating expectations and would likely result in a ratings downgrade.