Fairfax Purchases Interest in Chinese Insurer

[gaf63]

http://finance.yahoo.com/news/Fairfax-Purchases-Interest-in-iw-1009047935.html?x=0&.v=1

 

Purchase price of $66 mil US, still leaves around $300 on the latest debt offering

 

 

[Nnejad]

3x book I think.

 

1 billion RMBS in capital / 6.83 conversion x .15% stake = 22 mil.  Purchase price is 66 mil.

[watsa_is_a_randian_hero]

3x book I think.

 

1 billion RMBS in capital / 6.83 conversion x .15% stake = 22 mil.  Purchase price is 66 mil.

 

"Capital' for insurance companies most often refers to debt + equity.  Therefore the price/book multiple could actually be higher if the company has any debt.

[Cardboard]

I suspected that Prem would go in slowly into China and that seems to be what they are doing. Very smart IMO considering that right now everyone wants to be in China with their prospects for never ending growth... At over 3 times book for a 15% stake (not a take-over), you can imagine the kind of growth baked in the price. What is the P/E on that thing?

 

In other news, the final universal shelf prospectus to allow the issuance of $1 billion U.S. in new funding has been announced late today. They now have all the tools in place to complete the acquisition of Odyssey Re if they want to.

 

You know, it still trades below book value. Not 3 times!!! And just below 9 times operating income after tax.  :o  You don't think that Prem is salivating?

 

Cardboard

[Partner24]

I really like what Fairfax is doing. They are building slowly, but surely an international platform to develop the business...solid brick after solid brick. Make sense a lot to me! Also, I think that Fairfax is building a reputation of a first class owner.

 

Cheers!

[Uccmal]

I infinitely prefer this mode of growth to the purchases of huge existing insurers with decades of liability of their balance sheet.  This way FFH gets to really know the operations and participate in their growth with future capital infusions such as is being done with ICICI, Advent. 

 

 

[omagh]

What's the long term strategy when taking a series of minority positions (ICICI, Alltrust)?  Most operating companies want to be in charge of their destiny through control positions and by taking control of the underwriting and the investment float.  Are there national restrictions on percentage ownership?  Wouldn't a control position in a wholly-owned national subsidiary be preferable as a long-term strategy?  I understand wanting to participate in the upside of strong growth in maturing economies (e.g. BRIC countries).  If this is a taste test to a control position, that's a positive risk control measure that FFH has learned during its seven lean years (hi TIG!).

 

-O

 

I infinitely prefer this mode of growth to the purchases of huge existing insurers with decades of liability of their balance sheet.  This way FFH gets to really know the operations and participate in their growth with future capital infusions such as is being done with ICICI, Advent. 

[gaf63]

There are restrictions for foreign holders.  In India at moment it is 26%, possibly increasing to 49% soon.

I believe that foreign holders in China cannot hold a majority of a company,but not sure of actual %. 

As to small initial positions,  it is safer and only a relatively small amount of capital is put at risk.  If they are successful can increase position later. 

 

[FlyingArrow]

There are restrictions for foreign holders.  In India at moment it is 26%, possibly increasing to 49% soon.

I believe that foreign holders in China cannot hold a majority of a company,but not sure of actual %. 

As to small initial positions,  it is safer and only a relatively small amount of capital is put at risk.  If they are successful can increase position later. 

 

 

One interesting question relates to float "control" or shall we call it "management". Could FFH invest say up to the maximum in ICI (49% in near future) and then be in a position to have HWIC be hired/appointed to invest all or a significant component of the assets? Could this be repeated in time in China?

[Crip1]

Arrow,

 

I was thinking the exact same thing. One significant benefit which FFH brings to the table is their investing acumen. Allowing Hamblin-Watsa to invest the float of these partial positions, particularly in India where there is a limit on foreign ownership, would look to be a win-win for all.