Fitch Ratings has removed Sirius International Group Ltd.’s ratings from Rating Watch Negative and assigned them a stable outlook.
The rating agency also affirmed the BBB’ Long-Term Issuer Default Rating (IDR), ‘BBB-‘ senior debt rating and ‘A-‘ (Strong) Insurer Financial Strength (IFS) rating of Sirius’s operating subsidiaries.
Sirius’s ratings were placed on negative watch back in April 2019 after China Minsheng Investment Group Corp., Ltd. (CMIG), which owns 86% of Sirius common shares, activated cross-default provisions on $800 million of its subsidiaries’ bonds.
In order to repay its future debt, Fitch believes CMIG would likely have to sell meaningful assets outside of Sirius at a substantial discount, as CMIG has lost its capital market access.
While analysts continue to have concerns that the unresolved debt and liquidity crisis at CMIG could ultimately have negative implications for Sirius’s market position, they do not feel it has meaningfully weakened Sirius’s near-term competitive position or capitalisation.
However, Fitch cautioned that the longer CMIG is forced to deal with these challenges, the greater the risk that various Sirius stakeholders could reconsider their positions.
Fitch also considers Sirius’s financial flexibility to be reduced as a result of its strained majority shareholder, although Sirius does have access to capital markets as a publicly traded company.
Analysts further noted that a new owner with improved credit quality could increase Sirius’s ratings further, pointing to indications from Sirius that it may be considering strategic initiatives, including M&A, to resolve its shareholder concentration issue.
Sirius is not expected to remove capital from its operations to support CMIG, and it has entered into a voluntary undertaking with the Bermuda Monetary Authority to further strengthen its capital protections.
Fitch views 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.
