Fairfax India new issue

[SafetyinNumbers]

On 10/1/2022 at 9:02 AM, StubbleJumper said:

 

They probably have no intention to buy back that many shares.  The NCIB filing is just an annual formality, and at the end of most years, it bears no resemblance to reality (last year's filing gave them the ability to buy back 3.5 million shares).  It's a little like the annual shelf prospectus that FFH files.  It gives the company the flexibility to rapidly respond to changing market conditions, but we shouldn't really expect those filings to be used to their maximum potential.

 

But yes, if FIH does actually want to undertake meaningful repurchases, a SIB will have to be the tool.  As you've quite rightly pointed out, the limit of 7k shares per day from the NCIB would mean it would take an eternity to spend US$20m.

 

 

SJ

There is also a weekly block exemption which allows them to buy more than the daily limit but they need to find a block seller. Earlier this year that was Fidelity who I think are probably out of the name now. Last year they asked permission to buy 3.5m shares and they did buy back all 3.5m so I don’t understand Stubble’s comment about it bearing “no resemblance to reality”.

 

From the NCIB PR:

 

“Pursuant to its existing Normal Course Issuer Bid, Fairfax India sought and received approval from the TSX to purchase up to 3,500,000 Subordinate Voting Shares, and has purchased to date 3,500,000 Subordinate Voting Shares, which included Subordinate Voting Shares reserved for share-based payment awards, during the last twelve months through open market purchases on the TSX and other alternative Canadian trading systems at a volume weighted average price per share of US$12.40.”

 

 

[StubbleJumper]

1 minute ago, SafetyinNumbers said:

I don’t understand Stubble’s comment about it bearing “no resemblance to reality”.

 

Did you note the "in most years" part of the comment?  

 

SJ

[SafetyinNumbers]

8 hours ago, Crip1 said:

Ummm...up 10% today on seemingly normal volume with no news that I can see. What did I miss?

 

-Crip

I didn’t see any news either. Maybe the IIFL Wealth sale is expected to close soon. It was supposed to close by the end of Q3. That would give them cash to pursue an SIB if they choose.

[SafetyinNumbers]

1 minute ago, StubbleJumper said:

 

Did you note the "in most years" part of the comment?  

 

SJ

I did but I also noted that you put they were allowed to buy 3.5m shares in brackets but didn’t make it clear they actually bought them which to me implied they didn’t for a casual reader.

 

I happen to think they should be motivated to close the discount as much as possible by the end of the next performance period which ends next December. Personally, I wish they would offer us FFH stock and just take it private. It would be especially accretive if FFH is trading at a premium to book by the end of next year which I think is possible considering the earnings profile at FFH and the high likelihood of its own buybacks in the next 14 months.

[StubbleJumper]

5 minutes ago, SafetyinNumbers said:

I happen to think they should be motivated to close the discount as much as possible by the end of the next performance period which ends next December. Personally, I wish they would offer us FFH stock and just take it private. It would be especially accretive if FFH is trading at a premium to book by the end of next year which I think is possible considering the earnings profile at FFH and the high likelihood of its own buybacks in the next 14 months.

 

The large discount to BV provides plenty of incentive for some sort of action to be taken, either by Fairfax India or FFH.  My take is that a SIB is a better vehicle if Fairfax India actually wants to buy back a meaningful volume of shares (a SIB with a Dutch Auction price bracket of US$10-12 would probably do the job this year).  But, if the discount persists for a prolonged period, at some point it will end up near the top of FFH's capital allocation hierarchy.  FFH's own shares are probably near the top at this stage and then possibly leaving capital in the insurance subs might be the second tier...but, if the discount to book doesn't change eventually Fairfax India will become one of the most attractive options...

 

 

SJ

[glider3834]

56 minutes ago, SafetyinNumbers said:

I did but I also noted that you put they were allowed to buy 3.5m shares in brackets but didn’t make it clear they actually bought them which to me implied they didn’t for a casual reader.

 

I happen to think they should be motivated to close the discount as much as possible by the end of the next performance period which ends next December. Personally, I wish they would offer us FFH stock and just take it private. It would be especially accretive if FFH is trading at a premium to book by the end of next year which I think is possible considering the earnings profile at FFH and the high likelihood of its own buybacks in the next 14 months.

IDBI reported in news that prem & fairfax potentially interested - i am not sure if Fairfax india are in bidding process but that might impact buyback

 

[ICUMD]

T2 BIAL to be inaugurated Nov 10 by Modi.

An exciting milestone.

 

https://www.thehindu.com/news/cities/bangalore/prime-minister-likely-to-inaugurate-second-terminal-of-bengaluru-on-november-10/article65982030.ece

[nwoodman]

4 minutes ago, ICUMD said:

T2 BIAL to be inaugurated Nov 10 by Modi.

An exciting milestone.

 

https://www.thehindu.com/news/cities/bangalore/prime-minister-likely-to-inaugurate-second-terminal-of-bengaluru-on-november-10/article65982030.ece

Great news indeed.  I thought this might have been suffering further delays, good to see it happening in 2022

[Viking]

Fairfax India is trading today at $9.70/share. On Dec 31, Fairfax India closed at $12.61/share. Shares are down 23%. Makes sense… we are in a bear market and most stocks are down +20%. But does it make sense?

 

Fairfax India owns a collection of stocks from India. And stock averages in India are flat YTD. Taking a quick look, the publicly traded stocks that Fairfax owns are also up YTD in local currency. With the return of air travel and the impending opening of T2, one would expect BIAL’s value to be similar, if not higher, than at Jan 1. So what is causing the decline in Fairfax India shares?
1.) currency: the India rupee is down to the US$; high single digits i think

2.) risk off? Investors shunning EM?

Regardless, given the YTD strength of the stock market in India, the sell off in Fairfax India share price is looking overdone. 
—————

BV Dec 31 = $19.65

BV June 30 = $18.50 (with decline driven by currency)

BV Sept 30? My guess is it will be in $18.50 range.

Stock price Oct 25 = $9.70

P/BV = 0.52

 

Potential catalysts:

1.) big buyback from Fairfax India, when IIFL Wealth sale closes

2.) strength in US$ reverses

 

Longer term, with China becoming a pariah, India is the obvious beneficiary. Apple announcing shift of some production from China to India is a canary in the coal mine.

[Crip1]

5 hours ago, Viking said:

"..the sell off in Fairfax India share price is looking overdone."

Many others, myself included, have been saying this for a while. It was overdone when it fell from US14 and change down to $11-$12, and it's not stopped. I don't disagree with anything you've said but there are times when I do start to wonder if the market sees something that I don't. 

As far as what to do with the proceeds from selling IIFL Wealth, unless there is a screaming bargain out there, I'd love to see another Dutch Auction.

 

-Crip

[ICUMD]

This fits the bill in my portfolio for an 'Eternal hold' It beats to its own drummer.

 

Being thinly traded,  there will be moments of value realization, followed by return to discounted levels.  

 

On the other hand, the businesses are doing exceptionally well I think.  Management is excellent. 

 

Looking forward to the T2 inauguration, seeing Bial passenger numbers, and the use of proceeds from iifl wealth

 

 

 

 

 

 

 

 

 

[valueinvesting101]

Fairfax to sell stake in Bengaluru airport for $1.5bn


https://www.livemint.com/companies/news/fairfax-eyes-1-5-bn-in-bangalore-airport-exit-11666808036906.html


Not sure if the news is true. 

 

[TwoCitiesCapital]

3 hours ago, valueinvesting101 said:

Fairfax to sell stake in Bengaluru airport for $1.5bn


https://www.livemint.com/companies/news/fairfax-eyes-1-5-bn-in-bangalore-airport-exit-11666808036906.html


Not sure if the news is true. 

 

 

I'll wait for the press release, but am gonna be disappointed if that's the case. 

 

$1.5B is a decent valuation, but I viewed this as a unique long-term asset with a long runway and would've hoped for us to wait this out. 

 

Hopefully they have others in the pipeline that they need cash for if they're exiting. 

[RichardGibbons]

16 minutes ago, TwoCitiesCapital said:

a unique long-term asset with a long runway

 

Actually, twice as good as that--two long runways!  

[ICUMD]

4 hours ago, valueinvesting101 said:

Fairfax to sell stake in Bengaluru airport for $1.5bn


https://www.livemint.com/companies/news/fairfax-eyes-1-5-bn-in-bangalore-airport-exit-11666808036906.html


Not sure if the news is true. 

 

It could be that they are trying to up their market cap to reach the magic 2.85 billion USD market cap to go after IDBI bank.  

 

https://www.livemint.com/news/india/govt-lic-to-sell-60-72-stake-in-idbi-bank-govt-to-follow-two-stage-process-for-stake-sale-11665155960803.html

[SafetyinNumbers]

This article has more details. 
 

https://www.pehalnews.in/fairfax-to-sell-stake-in-bengaluru-airport-for-1-5bn/2562538/

[hobbit]

sell growing BIAL,  buy stressed out IDBI and try to turn it around. typical Fairfax . never learn

[Viking]

What a shocker. No idea what to think (need more information). BIAL has a fair value of $1.292 billion. Fair value of all investments of Fairfax India is around $3.3 billion. So BIAL is around 40% of Fairfax India’s total valuation.

 

I have always thought that the key reason for Fairfax India’s low stock price has been because no one believed BIAL was actually worth $1.3 billion. If it is actually sold for $1.5 billion… well my theory will be put to the test… we will see what Fairfax India’s stock price does (if the deal is confirmed). 
 

Fairfax India has been selling a lot of positions the past 12 months. IIFL Wealth has not closed yet. Fairchem Organics might also be up for sale. What to do with $2 billion in cash?

—————

If BIAL is sold i wonder what happens to Anchorage and OMERS? 

Edited October 27, 2022 by Viking

[nwoodman]

29 minutes ago, Viking said:

 

If BIAL is sold i wonder what happens to Anchorage and OMERS? cash

This!  

 

Hard to believe that you sell a pet insurance business for “1.4bn”that wasn’t on anyone’s radar.  Then you “firesale” a crown jewel that everyone has been waiting with bated breath to see its true earnings power.  This company melts my brain.

[StubbleJumper]

Bial has been a fabulous investment, but in some respects I don't mind seeing it sold.  There is possibly a large upside that has been left on the table, but in the back of my mind, I have always entertained the risk that a future government in India could nationalize it at a disadvantageous valuation using the rationale that a bunch of foreigners have been extracting fat profits at the expense of the Indian Population.  That concern might be a holdover from the decades of government interference in the Indian business sector and maybe the country has moved forward from that.  But, I don't entirely mind selling an asset that could be subject to expropriation.

 

SJ

[ICUMD]

2 hours ago, StubbleJumper said:

Bial has been a fabulous investment, but in some respects I don't mind seeing it sold.  There is possibly a large upside that has been left on the table, but in the back of my mind, I have always entertained the risk that a future government in India could nationalize it at a disadvantageous valuation using the rationale that a bunch of foreigners have been extracting fat profits at the expense of the Indian Population.  That concern might be a holdover from the decades of government interference in the Indian business sector and maybe the country has moved forward from that.  But, I don't entirely mind selling an asset that could be subject to expropriation.

 

SJ

I don't think this is a risk. 

 

Remember,  they are operators of the airport rather than outright owners.  They have a long term contracted lease to operate the airport. It is also a capital intensive business.

 

Having said that,  they could be getting jerked around.  Pressure to open up HAL, caps on UDF fee increases post COVID, etc. 

 

If they can get top dollar with the T2 inauguration and move into a business they know more about (banking) which they outright own, could be a very good move.  I think CSB has been a successful acquisition.  

 

Airports have been commanding top dollar in India as judged by the recent sales. I'm not against the move.   

 

If all this is true, this may be one of those 'revert to book value moments' I mentioned previously. LoL

[longlake95]

If, in fact this materializes, I’m not a fan. India has increasing tailwinds, as the world steps away from China. India is open for business, I think the risk is “low” that India nationalizes major infrastructure assets like BIAL.

 

Who sells a growing toll bridge?

[Xerxes]

Personally i always thought Fairfax was a tad out of its league with this large % investment in the airport. For me, Fairfax is a financial investor, fist and foremost. And does not have the ready-deep pocket to be a strategic investor of a major infrastrucutre asset and to be able to inject new capital if needs be.

 

That said,  this could be a Westinghouse like situation, where FIH sells while either FFH or FIH ends up keeping a sliver in that JV entity that bought it from, which may even be a name like Brookfield.

[longlake95]

Prem should be able to use partners like Omers/CPPIB, if he needs “stable” funding. It would be a shame to sell this asset in the 3rd inning.

[Viking]

7 hours ago, StubbleJumper said:

Bial has been a fabulous investment, but in some respects I don't mind seeing it sold.  There is possibly a large upside that has been left on the table, but in the back of my mind, I have always entertained the risk that a future government in India could nationalize it at a disadvantageous valuation using the rationale that a bunch of foreigners have been extracting fat profits at the expense of the Indian Population.  That concern might be a holdover from the decades of government interference in the Indian business sector and maybe the country has moved forward from that.  But, I don't entirely mind selling an asset that could be subject to expropriation.

 

SJ

Some thoughts:

1.) Fairfax’s track record in India is very good. 
2.) in particular, the team at Fairfax India’s track record, with its collection of businesses, has been very good.

3.) Fairfax has owned BIAL for some time. They understand the asset very well. And they understand the regulatory situation. 
4.) i think the plan, all along, has been to monetize the asset to invest in other more undervalued opportunities. A number of Fairfax India’s holding have been monetized over the past 15 months - all at significant gains. We also saw a partial sale to OMERS via Anchorage.

5.) my understanding is BIAL has a contract in place with the government where their returns are somewhat guaranteed. I think the government recently decided those returns were too high. If that type of logic continues into the next control period then the economics for BIAL deteriorate materially. Yes, it is a trophy asset. But it might not actually earn much money. This is a very real risk. 

6.) BIAL cost $653 million. If Fairfax India can sell it for $1.5 billion that represents a pretty significant increase in value over a fairly short period of time (couple of years) for Fairfax India shareholders.

7.) the government of India is currently selling off some pretty significant assets. This is a unique situation. If Fairfax and Fairfax India think they have found a large asset that will compound at a much higher rate than BIAL then i will give them the benefit of the doubt for now. Of course, we need much more information, but given their track record in India i am inclined to go with management on this one.

Edited October 27, 2022 by Viking