Fairfax India new issue

[Haryana]

58 minutes ago, SafetyinNumbers said:

Does that mean you think FIH gets to a premium to book again? If so, how long will it take?

 

In terms of cycles, theoretically, we swing between greed and fear. The optimism may take upto ten years to come back. However, the entity lacks the full characteristics of an asset, it can go to zero before that happens. 

 

One possiible scenario is that Canada seizes all assets of those Canadians who are of Indian origin including the residents and citizens. This already happened to Japanese during WW2. All those of Japanese descent were trapped including the citizens born in Canada. They were moved to special concentration camps after all of their homes,  businesses and fishing boats were seized and then auctioned off. 

 

In response to such a similar scenario in WW3 where India might be on the side of Russia, Indian goverment may seize all the assets of Fairfax India. 

 

[dartmonkey]

10 hours ago, UK said:

So with some (or more than some) luck you expect 17+ percent CAGR for the next 10 years from FIH (btw what was the CAGR of BV of FIH over the last 10 years?), while only 8-9 percent from FFH, but you own 2 percent in FIH and, I assume, since it is core, much more in FFH? Do I get this right? 

 

 

From $14.97 today, share price might go quite rapidly, in much less than 10 years in any case, if shares are really worth $25 already (1.2x book; they currently trade at 0.67 book) or, with a BIAL IPO, $35. That would mean to get to 17% CAGR in, say, 5 years, we would need the price to be at $33 in 5 years, which may already be the fair value as soon as the IPO happens.

 

We can't say what the CAGR has been over 10 years, since FIH had its IP at the end of January 2015 and it wasn't until the middle of 2016 that it had invested most of its funds :

 

By the middle of 2016, Fairfax India made two more investment commitments and had essentially fully committed the entire $1billion that it had raised. Since it was continuing to see excellent new investment opportunities, in September2016 Fairfax India obtained a $225million two-year secured term loan from a syndicate of Canadian banks. By yearend it made two more investments and committed to a third one. In two years Fairfax India deployed or had commitments for its entire $1.2billion of investable funds. Given these circumstances, on January13, 2017 Fairfax India issued 42.6million shares at $11.75 per share in a public offering and a private placement to OMERS and Fairfax Financial, raising gross proceeds of $500million.

 

So if we take the end of 2016 as baseline, we had a share price of $11.55 and a book value of $10.25. So in 7 1/2 years, the share price is up 4% p.a. and book value per share is up 10% p.a. For the prospects of this investment going forward, it is much better that the share price is trailing so far behind the book value, as this just gets added to future prospects instead of past performance. It means that annual returns like 17% in the next 5 years, or a few points more, given accumulating earnings or share count reductions, and perhaps a few points more, presuming some value is added in the next 5 years...

Edited September 16 by dartmonkey
I initially posted using current share price of $16 from memory, but it is $14.97, so I adjusted the returns accordingly

[TwoCitiesCapital]

On 9/14/2024 at 1:32 PM, ICUMD said:

For the greater part of 8 yrs, they have not been able to execute while they collect their fees based on BV.  

 

Not supporting share price during this time with aggressive buybacks is not investor friendly. 

 

The other catalyst - the privatization of BIAL through Anchorage seems to be always just around the corner for the last 3-4 yrs

 

I think management's biggest responsibility is BV growth. They've done that. 

 

They've also executed ongoing buybacks for the last 4-years that have reduced share count by quite a bit (¬12% of shares outstanding) at significant discounts while still making new investments and moving to realize the value in the underlying portfolio. 

 

I don't think managing share price is a top management priority nor is it what I would want to be paying them for. The discount is an opportunity that capital markets are giving us - not something that the managements' priority is to eliminate. Just like management did nothing to earn/be responsible for the prior NAV premium. 

 

On 9/14/2024 at 1:32 PM, ICUMD said:

Even if the share price rises to $25 overnight, that would be a poor 8 yr return.  

 

Many other options in the investible universe with better management.

 

This is the problem with buying things at excessive premiums to NAV. I was very critical of the values of FIH post IPO and warned against paying too much of a premium. I didn't own it then. I own it in huge size today. I think my 8-year return is going to be quite satisfactory. 

 

On 9/14/2024 at 4:23 PM, SafetyinNumbers said:

8 years ago there was no margin of safety but now it’s incredibly high. Price is what you pay, value is what you get (WB).

 

+1

 

We don't get to blame management for the mistake of having paid too high a price for the shares.

 

But now the market is offering to low of one. We don't get to blame management for that either - but we can take advantage of it. 

Edited September 16 by TwoCitiesCapital

[Dinar]

2 hours ago, Haryana said:

 

In terms of cycles, theoretically, we swing between greed and fear. The optimism may take upto ten years to come back. However, the entity lacks the full characteristics of an asset, it can go to zero before that happens. 

 

One possiible scenario is that Canada seizes all assets of those Canadians who are of Indian origin including the residents and citizens. This already happened to Japanese during WW2. All those of Japanese descent were trapped including the citizens born in Canada. They were moved to special concentration camps after all of their homes,  businesses and fishing boats were seized and then auctioned off. 

 

In response to such a similar scenario in WW3 where India might be on the side of Russia, Indian goverment may seize all the assets of Fairfax India. 

 

Japanese were NOT moved to concentration camps, they were moved to interment camps.  There is a difference.  In concentration camps, the goal is wiping out the population, while internment camps do not have such a goal.  Japanese given the brutality shown by Japan towards Chinese, Koreans, as well as all POWs have no standing to complain against internment camps.  

Given the tendency of left-wingers globally, including Canada to seize assets of those who they disagree with, it is of course a possibility.  I think however that India is too damn smart to get involved in conflicts that have nothing do do with it.  

[Txvestor]

16 hours ago, UK said:

 

Interesting. So with some (or more than some) luck you expect 17+ percent CAGR for the next 10 years from FIH (btw what was the CAGR of BV of FIH over the last 10 years?), while only 8-9 percent from FFH, but you own 2 percent in FIH and, I assume, since it is core, much more in FFH? Do I get this right? 

 

Yes I think with their infrastructure finance and industrial holdings in a 7.5-8% growth economy is to high teens is attainable in India. Regarding the fairfax mothership, the next 4yrs is clearer than the following 6yrs. 
I see them growing BV 15% next 4yrs, as the locked bond portfolio, apparently well functioning insurance subs and associates can be expected to deliver $4B or more in a year. However unlike FIH-U.to which is 30% below BV, FFH.to is now 1.25x BV after the run up. Any reversion to mean of these will favor Fairfax India. So all considered I think on a 10yr hold Fairfax India is better here. 
that said I am more confident in Fairfax hence my position size is 12% v 3% in Fairfax India. 

[Txvestor]

15 hours ago, Haryana said:

 

Thank you for the conversation. 

 

I like your point that FIH has good high value positions like IIFL and CSB bank other than the main of BIAL. 

 

I see a parallel of IV accrual with Fairfax of four five years ago.

 

Just like they were showing discipline by keeping low duration despite the complains and cries, in FIH they are staying put with value positions without running after the hot sectors of the day. Their positions are out of favour at the moment but they have the patience to let them get fairly priced. Not running after acquiring any over priced companies is the most important thing they are doing at the moment. We tend to complain for lack of action because it is boring but good investing is boring, a virtue. 

 

One of their tiny ventures in those three manufacturing or engineering companies could become a Digit like superstar within the next few years. 

 

Precisely, we can't anchor to past performance and miss the fruit picking days. 2012-2017 were frustrating days see in Q after Q earnings wiped out by what seemed like a gamble. 2017-2021 were even more frustrating as there was some movement in the company but none in the share price then finally the last 2yrs was the catch up, which I still don't think is complete, as the next 4yrs plus the insurance performance/valuations and growth and earnings potential of some of their subs like Digit and Poseidon are not adequately rewarded. In almost any valuation metric FFH.to is cheap compared to peer group. 
However regarding FIH-U.to When I see someone like Brian Bradstreet pony up a quarter of a million $ to buy shares I think that's speaking to clear undervaluation. 

[Madpawn]

My portfolio is very concentrated in 3-4 stocks and Fairfax India being the smallest position there. Seeing people on this forum starting to give up gives me a gut feeling it’s time to buy more … 

[modiva]

29 minutes ago, Madpawn said:

My portfolio is very concentrated in 3-4 stocks and Fairfax India being the smallest position there. Seeing people on this forum starting to give up gives me a gut feeling it’s time to buy more … 

That’s what I just did. It didn’t work out yet for early investors…but the odds are in favor of recent investors.  It may take a few years for the upside to pan out but the downside is limited. 

[Haryana]

6 hours ago, MMM20 said:

 

I think I missed this. When did that happen? Thanks

 

Not much idea, just searched it up - 

https://simplywall.st/stocks/ca/diversified-financials/tsx-fih.u/fairfax-india-holdings-shares/news/positive-signs-as-multiple-insiders-buy-fairfax-india-holdin

[Haryana]

11 hours ago, Dinar said:

...

Japanese given the brutality shown by Japan towards Chinese, Koreans, as well as all POWs have no standing to complain against internment camps.  

 ...

What level of racism are you talking? 

Can they complain of nuked civilians?

 

"In concentration camps, the goal is wiping out the population, while internment camps do not have such a goal."

Japanese did get wiped out though, by the psychological brutality of the internment camps. They were a very significant minority in Vancouver and did well in fishing. Also, they had a highly successful baseball team by the name of Asahi which is now part of Hall of Fame. Now you will have to use a microscope to find Japanese in Canada. What was once Japantown in Vancouver is now the Chinatown. 

Actually, after the war or internment was over, they were all deported out of the province of British Columbia. 

[UK]

16 hours ago, dartmonkey said:

 

From $14.97 today, share price might go quite rapidly, in much less than 10 years in any case, if shares are really worth $25 already (1.2x book; they currently trade at 0.67 book) or, with a BIAL IPO, $35. That would mean to get to 17% CAGR in, say, 5 years, we would need the price to be at $33 in 5 years, which may already be the fair value as soon as the IPO happens.

 

We can't say what the CAGR has been over 10 years, since FIH had its IP at the end of January 2015 and it wasn't until the middle of 2016 that it had invested most of its funds :

 

By the middle of 2016, Fairfax India made two more investment commitments and had essentially fully committed the entire $1billion that it had raised. Since it was continuing to see excellent new investment opportunities, in September2016 Fairfax India obtained a $225million two-year secured term loan from a syndicate of Canadian banks. By yearend it made two more investments and committed to a third one. In two years Fairfax India deployed or had commitments for its entire $1.2billion of investable funds. Given these circumstances, on January13, 2017 Fairfax India issued 42.6million shares at $11.75 per share in a public offering and a private placement to OMERS and Fairfax Financial, raising gross proceeds of $500million.

 

So if we take the end of 2016 as baseline, we had a share price of $11.55 and a book value of $10.25. So in 7 1/2 years, the share price is up 4% p.a. and book value per share is up 10% p.a. For the prospects of this investment going forward, it is much better that the share price is trailing so far behind the book value, as this just gets added to future prospects instead of past performance. It means that annual returns like 17% in the next 5 years, or a few points more, given accumulating earnings or share count reductions, and perhaps a few points more, presuming some value is added in the next 5 years...

 

Thanks!

[UK]

10 hours ago, Txvestor said:

Yes I think with their infrastructure finance and industrial holdings in a 7.5-8% growth economy is to high teens is attainable in India. Regarding the fairfax mothership, the next 4yrs is clearer than the following 6yrs. 
I see them growing BV 15% next 4yrs, as the locked bond portfolio, apparently well functioning insurance subs and associates can be expected to deliver $4B or more in a year. However unlike FIH-U.to which is 30% below BV, FFH.to is now 1.25x BV after the run up. Any reversion to mean of these will favor Fairfax India. So all considered I think on a 10yr hold Fairfax India is better here. 
that said I am more confident in Fairfax hence my position size is 12% v 3% in Fairfax India. 

 

Thank you for answering!

[villainx]

On 9/16/2024 at 10:14 AM, TwoCitiesCapital said:

I don't think managing share price is a top management priority nor is it what I would want to be paying them for.

 

I feel the share price hamstrings them as they seek more opportunity.  It doesn't have to be at or above book value, but being close gives it option to sell shares if something big comes along.  At this point, one of the tools is just not available.

[TwoCitiesCapital]

2 hours ago, villainx said:

 

I feel the share price hamstrings them as they seek more opportunity.  It doesn't have to be at or above book value, but being close gives it option to sell shares if something big comes along.  At this point, one of the tools is just not available.

 

When Fairfax Financial was trading @ $300 USD in 2020 - was that a bad time to be buying because the low share price hamstrung their ability to issue shares? 

 

Or was it a great time to be buying because it was absurdly cheap and gave them the optionality to reduce share count at a fantastic discount? 

 

And if the latter - why are we treating this differently? 

[villainx]

I'll take a discount with good management and good assets any day.  I have a position.  

 

I'm just more thinking in terms of IDBI or other prospects.

[dartmonkey]

57 minutes ago, villainx said:

I'm just more thinking in terms of IDBI or other prospects.

The tool of issuing shares to acquire a company would be useful if the market price of FIH shares were higher, but in the case of IDBI, we are looking at an all cash acquisition in the ballpark of ~$10b, by a company that is worth $2b, so it is hard to imagine financing this with share issuance anyways. It's not even so obvious how Fairfax plans to do this, with its market cap of $29b, given the insurance regulators breathing down its neck.

 

Since it looks like Fairfax may be the frontrunner in this IDBI privatization (https://www.business-standard.com/companies/news/canada-based-firm-fairfax-offers-all-cash-deal-to-acquire-idbi-bank-124031800325_1.html), it will be interesting to see how they set up the the financing, but surely FIH by itself will not be able to get very far.

[gfp]

42 minutes ago, dartmonkey said:

The tool of issuing shares to acquire a company would be useful if the market price of FIH shares were higher, but in the case of IDBI, we are looking at an all cash acquisition in the ballpark of ~$10b, by a company that is worth $2b, so it is hard to imagine financing this with share issuance anyways. It's not even so obvious how Fairfax plans to do this, with its market cap of $29b, given the insurance regulators breathing down its neck.

 

Since it looks like Fairfax may be the frontrunner in this IDBI privatization (https://www.business-standard.com/companies/news/canada-based-firm-fairfax-offers-all-cash-deal-to-acquire-idbi-bank-124031800325_1.html), it will be interesting to see how they set up the the financing, but surely FIH by itself will not be able to get very far.

I don’t think the potential IDBI bank deal is for $10 billion USD. It is not the entire company that is being offered. 
 

good to have some friends with capital when a deal comes along. Hey prem, who ya got?

[dartmonkey]

4 hours ago, gfp said:

don’t think the potential IDBI bank deal is for $10 billion USD. It is not the entire company that is being offered. 

 

You are right:

 

« The government, which owns 45.48% in IDBI Bank, and state-owned Life Insurance Corp of India (LIFI.NS), opens new tab which holds 49.24%, together plan to sell 60.7% of the lender. The sale process was first announced in 2022. »

 

Still, even $6b is a big morcel for $2b FIH to swallow. 

 

[TwoCitiesCapital]

2 minutes ago, dartmonkey said:

 

 

You are right:

 

« The government, which owns 45.48% in IDBI Bank, and state-owned Life Insurance Corp of India (LIFI.NS), opens new tab which holds 49.24%, together plan to sell 60.7% of the lender. The sale process was first announced in 2022. »

 

Still, even $6b is a big morcel for $2b FIH to swallow. 

 

 

I think the hope was BIAL/anchorage IPO providing some liquidity to add to the existing cash held - we will see if it still will. I would expect bureaucratic delays may also impact the sale process as they did the IPO process. 

 

Some debt issuance, some equity partners like OMERS, and some additional cash on the balance sheet seems like they could get it done.

 

And while $2B may be the market cap - the current portfolio is closer to $3.6B with seemingly conservative marks for BIAL and limited borrowings at this time - so I think they could find a way to leverage the balance sheet a little and take a 50% chunk in this name similar to how BIAL has dominated the portfolio in the past. 

[hobbit]

3 hours ago, TwoCitiesCapital said:

 

I think the hope was BIAL/anchorage IPO providing some liquidity to add to the existing cash held - we will see if it still will. I would expect bureaucratic delays may also impact the sale process as they did the IPO process. 

 

Some debt issuance, some equity partners like OMERS, and some additional cash on the balance sheet seems like they could get it done.

 

And while $2B may be the market cap - the current portfolio is closer to $3.6B with seemingly conservative marks for BIAL and limited borrowings at this time - so I think they could find a way to leverage the balance sheet a little and take a 50% chunk in this name similar to how BIAL has dominated the portfolio in the past. 

For IDBI acquisition , Prem has sort of hinted that there could be a structure where FFH and others invests through FIH and FIH takes management and performance fees. This will not only offset the fees paid to FFH but also generate a new revenue stream for FIH. I think it's very likely that this happens. 

 

FIH will also contribute CSB bank and some cash to get some direct equity in IDBI as well. 

Edited September 19 by hobbit

[hobbit]

https://www.moneycontrol.com/news/business/rbi-lifts-restrictions-imposed-on-iifl-finances-gold-loan-business-12825738.html

 

Restrictions lifted on IIFL finance's gold business

Edited September 20 by hobbit

[villainx]

On 9/19/2024 at 12:25 AM, hobbit said:

FIH will also contribute CSB bank and some cash to get some direct equity in IDBI as well. 

 

That's where the ability to issue some FIH could have helped boost whatever % of direct equity they'll eventually get.  

 

I guess with continued execution,  FIH will get closer to BV and can do so for future deals.  

 

 

[dartmonkey]

On 9/19/2024 at 12:25 AM, hobbit said:

FIH will also contribute CSB bank and some cash to get some direct equity in IDBI as well. 

Have they talked about when they might reduce the CSB bank* stake? They were told in 2019 to commit to 5 years, and then to reduce from 51% to 15% before 12 years:

 

As part of the deal, the RBI has asked for a five-year lock-in for Fairfax and asked it to get down its holding in the bank to 15 per cent in 12 years, the sources said. https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-lets-watsas-fairfax-to-buy-51-per-cent-in-catholic-syrian-bank/articleshow/56260554.cms

 

That would be pretty good timing, actually. They were at 49.7% at 2023 year end, and announced a reduction to 40% in June of this year, " in compliance with the RBI’s dilution schedule." I presume the RBI will be giving them some guidance about how quickly they should sell the rest, if they acquire 60% of IDBI. That remaining 40% of CSB would be worth $269m now, and every little bit helps, if they're trying to get to $6b for the cash acquisition! 

 

===

 

*CSB is Catholic Syrian Bank, so CSB bank is redundant. I better get used to it, they clearly don't want us to remember what CSB stood for:  "We have rebranded ourselves in the year 2019 by changing our name as “CSB Bank Limited”, to address region and community related perceptional issues associated with our previous brand name."

 

More interesting Catholic Syrian history here: https://www.forbesindia.com/article/boardroom/catholic-syrian-gods-own-bank/12582/1

[gfp]

My understanding is if Fairfax entities "win" the deal for IDBI, CSB will have to be merged into IDBI with the IDBI "identity" being preserved.  

[hobbit]

48 minutes ago, gfp said:

My understanding is if Fairfax entities "win" the deal for IDBI, CSB will have to be merged into IDBI with the IDBI "identity" being preserved.  

 

yes that's correct and its likely that CSB will get a significant premium for the merger, probably in the range of 80-100%. If not for IDBI deal overhang , CSB would be trading at much higher prices.