UPDATE 2-Highfields ups Genworth stake, to discuss options for MI unit
* Highfields raises stake to 5.2 percent
* To discuss options for U.S. MI unit
* Shares up 9 percent
By Jochelle Mendonca and Sharanya Hrishikesh
June 28 (Reuters) - Hedge fund Highfields Capital raised its stake in Genworth Financial Inc and said it expects to discuss options for the insurer's U.S. mortgage insurance operations and other businesses.
Genworth's shares rose 9 percent to $5.37 in afternoon trade on the New York Stock Exchange.
The discussions would include a possible sale or spinoff of assets, the hedge fund said in a filing with the U.S. Securities and Exchange Commission.
Highfields, which had reported a 3.8 percent stake as of March 31, now owns 5.2 percent of the insurer.
Genworth's U.S. mortgage insurance unit has been losing money as it continues to deal with souring mortgages insured at the height of the housing boom.
Long-time Genworth Chief Executive Michael Frazier resigned in May after the insurer pushed back plans to sell a minority stake in its Australian mortgage insurance business through an initial public offering.
The Australian unit's listing would have freed up capital, which shareholders were hoping would be used for a long-awaited share buyback program.
"I think it has been the view of many investors that Michael Frazier as CEO was an impediment to change. Now given that the board is going through its own strategic review, it may be more receptive to Highfields' ideas," BTIG analyst Mark Palmer said.
Investors have often been critical of Genworth for not doing enough to boost its share value, with hedge fund maven Steve Eisman even threatening a proxy war.
Bond rating agency Moody's on Wednesday said it was placing the company on credit review for a possible downgrade to junk with about $4.3 billion of debt affected.
The rating agency said that Genworth's debt rating, currently at the lowest investment-grade level on its scale, could be downgraded based on a failure to delink the U.S. MI unit from the holding company's creditors.
While Genworth's life insurance operations have a strong credit rating, the holding company is being hurt by the poor outlook for the mortgage insurance business.
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