Fairfax India new issue

[valueinvesting101]

It seems sale of IDBI bank is getting closer:

https://www.business-standard.com/companies/news/idbi-bank-disinvestment-sale-bidders-due-diligence-financial-turnaround-125012200526_1.html

That could a reason behind the recent move.

[Hoodlum]

On 1/23/2025 at 12:16 PM, valueinvesting101 said:

It seems sale of IDBI bank is getting closer:

https://www.business-standard.com/companies/news/idbi-bank-disinvestment-sale-bidders-due-diligence-financial-turnaround-125012200526_1.html

That could a reason behind the recent move.

 

So, the final bids needs to be in by the end of February with the transaction expected to be completed likely late summer.  I wonder if we will hear of any leaks regarding the bids, after they have been submitted. 

 

Edited January 26 by Hoodlum

[gfp]

Did anyone on this message board attend the Fairfax India investor tour / trip this year?  I know Sanjeev went years ago.  Who went this year?

[dartmonkey]

1 hour ago, Hoodlum said:

 

So, the final bids needs to be in by the end of February with the transaction expected to be completed likely late summer.  I wonder if we will hear of any leaks regarding the bids, after they have been submitted. 

 

 So IDBI has a current market cap of 82632 crore, which translates to $9.6b USD, and the government (Union government, i.e. Federal government) plus the Life Insurance Corporation of India (LIC, which, from what I can tell, is the government-owned company that resulted from the nationalizion of all insurance companies in India in 1973) are selling 60.72% of their 95% stake. This is actually 30.48% from the government and 30.24% from promoter LIC, so it seems it is not 60.72% of their stake (as the Business Standard article incorrectly stated it) but rather 60.72% of the company, not that it makes a huge difference, since only 5% is currently held by private investors. So the acquirer, who would obtain control of the company, would presumably have to shell out something like .6072*9.6b = $5.8b, or perhaps more, if there is a control premium they have to pay over the current market price. 

 

What are their chances? Business Standard says that there are 4 bidders: Fairfax Financial, Emirates NBD, Oaktree Capital, and Kotak Mahindra Bank, who have until the end of February to submit their final bid. But this article from October 2024 says that there are 3 (Fairfax, Emirates and Kotak Mahindra), with the latter maybe not so keen on the idea: https://www.cnbctv18.com/business/exclusive-kotak-mahindra-bank-ceo-ashok-vaswani-nothing-seems-to-be-cooking-on-idbi-bank-currently-19485224.htm

 

If it is true that "the entire transaction poised to be completed by the first half of the next financial year (FY26)", as the Business Standard says, then we should know well before the end of June. And if Fairfax does win, it is obviously a very big deal for a company of Fairfax India's size, with its market cap of $2.4b (and considerably less than that, as little as a month ago), and book value of $2.9b (as of Sept 30). We don't know how Fairfax intends to structure the deal, but it would likely be transformative for Fairfax India, if they win the contest. They may have to sell other assets, likely higher than book value, and instead of being an airport and a few other little things, they would likely be primarily a big bank, plus an airport, and a few other tiny things. Given the uncertainty, it's not wonder the stock has been so volatile lately.

 

[SafetyinNumbers]

2 hours ago, gfp said:

Did anyone on this message board attend the Fairfax India investor tour / trip this year?  I know Sanjeev went years ago.  Who went this year?

I went. It was a great trip. Around 20 people including ~10 investors. Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

[dartmonkey]

1 hour ago, SafetyinNumbers said:

Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

Wow, that is really invaluable information. Thanks a lot for making the trip and summarizing your impressions.

 

If you have any details about the positions you would care to contribute, I’m sure I speak for everyone here in saying that it would be much appreciated.  

 

I would also be curious to know more details about the trip: do they do one every year? how long did you go for? how much did it cost? does Fairfax look after accommodations, meals, etc? did you do a lot of travelling within India?

 

Ive never been to India, but it sounds like it might be a great way of, as they say in Quebec, joindre l’utile à l’agréable. 

 

[KFRCanuk]

4 hours ago, SafetyinNumbers said:

I went. It was a great trip. Around 20 people including ~10 investors. Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

Is there a minimum amount of shares you need to hold? Or a certain net worth?

[gfp]

1 hour ago, KFRCanuk said:

Is there a minimum amount of shares you need to hold? Or a certain net worth?

 

Anyone could have signed up.  They mentioned it at the annual meeting.  I assume thomas cook india did the booking

[petec]

19 hours ago, dartmonkey said:

obviously a very big deal for a company of Fairfax India's size, with its market cap of $2.4b (and considerably less than that, as little as a month ago), and book value of $2.9b (as of Sept 30). We don't know how Fairfax intends to structure the deal

 

Interesting to speculate though.

 

1) FFH takes a direct stake.

 

2) FFH lends a fat chunk to FIH to complete the deal.

 

3) CSB is actually the acquiror, funded via an equity issue and a loan from FFH.

 

4) OMERS gets roped in on an 8% preferred deal.

 

Any other ideas?

[petec]

19 hours ago, SafetyinNumbers said:

I went. It was a great trip. Around 20 people including ~10 investors. Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

 

Damn! I had it in mind to go on this and missed it. Thanks for the info.

[gfp]

2 hours ago, petec said:

 

Interesting to speculate though.

 

1) FFH takes a direct stake.

 

2) FFH lends a fat chunk to FIH to complete the deal.

 

3) CSB is actually the acquiror, funded via an equity issue and a loan from FFH.

 

4) OMERS gets roped in on an 8% preferred deal.

 

Any other ideas?

 

If Fairfax India "wins" the deal I think it's a near certainty that CSB gets merged into IDBI and IDBI is the brand name that survives.  I think that is a requirement.  I don't think it solves anything for the sellers if CSB pays in new stock, so I doubt that is likely.

 

I think you see FIH.U buy what it can, however those funds are obtained, and FFH parent company provide a chunk of capital and then the usual co-investor friendly partners that FFH regularly goes to.  Maybe Oaktree "loses" and co-invests, maybe FIH.U places new shares at $20 to raise some capital (I doubt it).  The participation of certain Canadian pension funds on boilerplate friendly preferred stock deals would not be surprising!

 

I don't think Kotak Mahindra "wins" for the reason mentioned above - I think India wants IDBI to continue as the brand name and the surviving institution and I don't think Kotak Mahindra Bank does that but we'll see..

 

The more time that passes before this potential deal closes, the more capital both FIH and FFH have available.  Market conditions don't seem right for an Anchorage IPO at the moment but isn't that still on-deck at some point?

[This2ShallPass]

18 hours ago, gfp said:

Market conditions don't seem right for an Anchorage IPO at the moment but isn't that still on-deck at some point?

Why do you say that? Isn't there a deadline ~Sep'25 for an IPO (some deal w omers)?

[gfp]

4 hours ago, This2ShallPass said:

Why do you say that? Isn't there a deadline ~Sep'25 for an IPO (some deal w omers)?

 

Nothing specific - just in general the Indian stock market looks to be headed lower and I guess I expect it to continue for a while.

 

[villainx]

On 1/27/2025 at 9:17 AM, gfp said:

Maybe Oaktree "loses" and co-invests, maybe FIH.U places new shares at $20 to raise some capital (I doubt it).

 

Has Oaktree Capital done this sort of thing prior?  I don't think of them as buying whole businesses of this scale and keeping it long term.  If my thinking is correct, they wouldn't seem like a proper fit.

 

 

[jbwent63]

6 hours ago, villainx said:

 

Has Oaktree Capital done this sort of thing prior?  I don't think of them as buying whole businesses of this scale and keeping it long term.  If my thinking is correct, they wouldn't seem like a proper fit.

 

 

Isn't Oaktree owned or controlled by Brookfield? They certainly buy businesses, so maybe that would be the vehicle it would use for this deal.

[Crip1]

Price dipped below US$17 early today on the TTD (Trump Terrif Diversion). I contemplated adding another 10-20% to my position with some dry powder from a recent sale, but got sidetracked at work and missed the dip. We may look back at today as one of the last times to buy this under $17.

 

-Crip

[nwoodman]

4 hours ago, Crip1 said:

We may look back at today as one of the last times to buy this under $17.

 

-Crip

Never count out the vagaries of the market.  I also think it is a little dependent on the ramp towards the Anchorage IPO later in the year. “Waiting for Godot” springs to mind.  
 

It will be interesting to see if we get any color via the Q4  CC or AGM.

 

“If the IPO does not occur by September 2025, OMERS’ stake in Anchorage will remain fixed at 11.5% under a valuation protection mechanism. This prevents dilution of OMERS’ ownership, even if future valuations increase. Without the IPO, OMERS loses the opportunity to adjust its stake proportionally to Anchorage’s market value post-listing.

Valuation Ratchet Clause
    •    If the IPO proceeds but values Anchorage below the $2.6 billion valuation assigned to BIAL in 2021, OMERS is contractually entitled to additional shares to compensate for the lower valuation.
    •    This “ratchet” mechanism ensures OMERS retains its economic interest relative to the agreed 2021 baseline, potentially reducing Fairfax India’s ownership share in Anchorage.”

[gfp]

For anybody who attended the Fairfax India trip / tour this year - was there any discussion of additional airport projects within the 150km zone around BIAL?  It seem like there are one or two new airport projects moving forward and I was hoping the negotiation necessary with BIAL would result in Anchorage or whatever operating the new airport(s).  Was this discussed on the trip?

 

edit:  I should have tried tagging @SafetyinNumbers

Edited 1 hour ago by gfp