Fairfax India new issue

[CoGreenwich&Laight]

Please see the pdf attached.  The last point of which is below.
 

3/ BUT most importantly why they should ONLY buy back stock. With the shares at $17, the implied valuation of BIAL in the market is a discount of 71% to 84%. Or perhaps much higher, as this is at implied multiples that are well below what are touted as applicable. Change the figures at your will. 

 

 

On the books BIAL is marked at $1,979 mm which is 67% of NAV, or 79% of NAV at the $3.7bn IPO valuation. I believe that number is low at 10x ‘27 EBITDA. The point is that FIH is a BIAL proxy, as stated previously by a member of this group and myself. It's how things have evolved, and perhaps for the best. My position is that FIH should wind down everything else, if not, a conglomerate/holdco discount will continue even post listing. But even more so, if you dont want to agree with me, the bottom line is that it is a tremendous value. Nothing else they can buy has this upside. And we should push them hard to do so. Even they will benefit from the higher performance fees calculations.

CoB (1).pdf

[hardcorevalue]

Again I think it goes back to incentives.

 

FFH would rather a steady income stream from FIH rather than a one off pop to close BIAL discount. 

[CoGreenwich&Laight]

1 minute ago, hardcorevalue said:

Again I think it goes back to incentives.

 

FFH would rather a steady income stream from FIH rather than a one off pop to close BIAL discount. 

its always incentives. 

its not about the pop. its about the implied value of BIAL, particularly given its prospects. The pop if it happens is an outcome.

[hardcorevalue]

I agree on BIAL, i was referencing liquidating the other investments to buyback stock. 

 

Not going to happen IMO. 

[CoGreenwich&Laight]

Understandable. But in the interim, all incremental investment capital should go to the buyback...any liquidations like Saurashtra, the latest, should go to BIAL by repurchasing FIH. Subsequent ones can be a mix of paying off the debts (Siemens and Holdco) and buybacks.

[SafetyinNumbers]

27 minutes ago, CoGreenwich&Laight said:

Understandable. But in the interim, all incremental investment capital should go to the buyback...any liquidations like Saurashtra, the latest, should go to BIAL by repurchasing FIH. Subsequent ones can be a mix of paying off the debts (Siemens and Holdco) and buybacks.

I prefer to see them issue debt to buyback shares vs turning away potential investment opportunities. Do you think if IDBI happens and it’s a GP/LP structure with management/performance fees attributable to FIH, that it will help close the discount? 

[CoGreenwich&Laight]

1 hour ago, SafetyinNumbers said:

I prefer to see them issue debt to buyback shares vs turning away potential investment opportunities. Do you think if IDBI happens and it’s a GP/LP structure with management/performance fees attributable to FIH, that it will help close the discount? 

Sorry i dont see that happening.

 

Discounts exist due to a variety of reasons including, 1/ layers of fees, 2/ corporate taxes, 3/no claim to underlying cash flows, 4/significant capital tied up with private companies with arbitrary mtm tweakable with a 1% move in discount rates, 5/ poor liquidity, 6/ poor NAV growth, ie, investment performance, 7/direct access to underlying shares, 8/dual structure shares, and 9/opaque financial statements.

For the discount to close materially, FIH will have to communicate that they care about subordinates, and act on it on multiple fronts - align incentives, adjust fees to reflect performance, capitalize on the discount (SBB). For eg, FFH took their performance fees in cash a whopping $110mm a few years ago. They've broadcast that as doing us a favor by not taking discounted shares instead, and that has been swallowed wholesale. Well, the discount exists because of them, they are taking money out while subs are not getting any, they've repurchased a paltry <1% of shares - over two years...as an example, what if they'd taken that $110mm of cash...and bought "discounted" shares...thats a vote of confidence...win- win-win for everyone...many things like that need to happen...i'll stop..

[73 Reds]

17 minutes ago, CoGreenwich&amp;Laight said:

Sorry i dont see that happening.

 

Discounts exist due to a variety of reasons including, 1/ layers of fees, 2/ corporate taxes, 3/no claim to underlying cash flows, 4/significant capital tied up with private companies with arbitrary mtm tweakable with a 1% move in discount rates, 5/ poor liquidity, 6/ poor NAV growth, ie, investment performance, 7/direct access to underlying shares, 8/dual structure shares, and 9/opaque financial statements.

For the discount to close materially, FIH will have to communicate that they care about subordinates, and act on it on multiple fronts - align incentives, adjust fees to reflect performance, capitalize on the discount (SBB). For eg, FFH took their performance fees in cash a whopping $110mm a few years ago. They've broadcast that as doing us a favor by not taking discounted shares instead, and that has been swallowed wholesale. Well, the discount exists because of them, they are taking money out while subs are not getting any, they've repurchased a paltry <1% of shares - over two years...as an example, what if they'd taken that $110mm of cash...and bought "discounted" shares...thats a vote of confidence...win- win-win for everyone...many things like that need to happen...i'll stop..

Yeah its a value trap.  Size it accordingly.  When/if the CEO starts loading up, so should we.

[Madpawn]

1 hour ago, SafetyinNumbers said:

I prefer to see them issue debt to buyback shares vs turning away potential investment opportunities. Do you think if IDBI happens and it’s a GP/LP structure with management/performance fees attributable to FIH, that it will help close the discount? 

In my simple mind I also see this as a stopper to buybacks. If FIH ends up winning IDBI, they’ll need capital to inject into the deal no matter the structure - otherwise might aswell say FIH is a pure play on airport and infra and the rest is all FFH. 
 

Also, I think Fairfax is in an awkward position where FIH is meant to be kept afloat as a separate entity but any additional buybacks just further strengthens FFH’s position both in terms of voting rights but also commercial ownership. I really hope that regardless of their decisions, we’ll get some clarity by this years annual meeting or when a deal structure is announced for IDBI. 

[SafetyinNumbers]

2 minutes ago, 73 Reds said:

Yeah its a value trap.  Size it accordingly.  When/if the CEO starts loading up, so should we.

A value trap is usually a situation where the IV isn’t growing. That’s not the case here. 

[SafetyinNumbers]

1 minute ago, Madpawn said:

In my simple mind I also see this as a stopper to buybacks. If FIH ends up winning IDBI, they’ll need capital to inject into the deal no matter the structure - otherwise might aswell say FIH is a pure play on airport and infra and the rest is all FFH. 
 

Also, I think Fairfax is in an awkward position where FIH is meant to be kept afloat as a separate entity but any additional buybacks just further strengthens FFH’s position both in terms of voting rights but also commercial ownership. I really hope that regardless of their decisions, we’ll get some clarity by this years annual meeting or when a deal structure is announced for IDBI. 

A bigger stopper to buybacks is that the float isn’t that big to begin with after Fairfax and OMERS shares given how much they have bought back already. 

[73 Reds]

Just now, SafetyinNumbers said:

A value trap is usually a situation where the IV isn’t growing. That’s not the case here. 

True but IV is still "trapped" inside the entity for all the reasons cited.  

[SafetyinNumbers]

23 minutes ago, CoGreenwich&amp;Laight said:

Sorry i dont see that happening.

 

Discounts exist due to a variety of reasons including, 1/ layers of fees, 2/ corporate taxes, 3/no claim to underlying cash flows, 4/significant capital tied up with private companies with arbitrary mtm tweakable with a 1% move in discount rates, 5/ poor liquidity, 6/ poor NAV growth, ie, investment performance, 7/direct access to underlying shares, 8/dual structure shares, and 9/opaque financial statements.

For the discount to close materially, FIH will have to communicate that they care about subordinates, and act on it on multiple fronts - align incentives, adjust fees to reflect performance, capitalize on the discount (SBB). For eg, FFH took their performance fees in cash a whopping $110mm a few years ago. They've broadcast that as doing us a favor by not taking discounted shares instead, and that has been swallowed wholesale. Well, the discount exists because of them, they are taking money out while subs are not getting any, they've repurchased a paltry <1% of shares - over two years...as an example, what if they'd taken that $110mm of cash...and bought "discounted" shares...thats a vote of confidence...win- win-win for everyone...many things like that need to happen...i'll stop..

The discount won’t close for long. You will sell on the discount closing short term and then the discount will grow again. There are no natural buyers at a small discount and that includes FIH itself. The only reason the discount has narrowed recently is because there is a view on the Anchorage IPO happening in the next 12-18 months. 

 

I disagree on poor NAV growth. The BV growth has been slow but IV has grown reasonably well depending on how it’s measured. I think it’s some premium to liquidation value given the network they have built. 

[SafetyinNumbers]

4 minutes ago, 73 Reds said:

True but IV is still "trapped" inside the entity for all the reasons cited.  

They have recycled assets in the past. They will do so in the future. The longer FIH exists, the more frequent realizations will come. 

[73 Reds]

1 minute ago, SafetyinNumbers said:

They have recycled assets in the past. They will do so in the future. The longer FIH exists, the more frequent realizations will come. 

For me this is a simple play.  The airport is their main asset and presumably the value is growing by the month.  For shareholders to realize value we need a catalyst, i.e. the IPO.  You gotta either trust management or you don't.  If you do, its easy to buy shares at these prices.  Otherwise, its an easy pass. 

[SafetyinNumbers]

Just now, 73 Reds said:

For me this is a simple play.  The airport is their main asset and presumably the value is growing by the month.  For shareholders to realize value we need a catalyst, i.e. the IPO.  You gotta either trust management or you don't.  If you do, its easy to buy shares at these prices.  Otherwise, its an easy pass. 

I think the big assumption here is that when the BV goes up to reflect the IPO, holders of FIH will lift their offers to a similar discount to BV that it trades at now. I’m less sure that new buyers will show up unless the discount is bigger. 

[73 Reds]

2 minutes ago, SafetyinNumbers said:

I think the big assumption here is that when the BV goes up to reflect the IPO, holders of FIH will lift their offers to a similar discount to BV that it trades at now. I’m less sure that new buyers will show up unless the discount is bigger. 

That goes directly back to how management treats shareholders.  

[SafetyinNumbers]

8 minutes ago, 73 Reds said:

That goes directly back to how management treats shareholders.  

So ultimately buying shares at higher prices. It’s a tough problem. 

[CoGreenwich&Laight]

15 hours ago, SafetyinNumbers said:

I think the big assumption here is that when the BV goes up to reflect the IPO, holders of FIH will lift their offers to a similar discount to BV that it trades at now. I’m less sure that new buyers will show up unless the discount is bigger. 

Im curious, why are you ok with the discount. Why would you not want this to close? Why not take action to close it, whether successful or not, as management will not? Im sure you realize that their managment fee is on the book value, not a discount to book value.  To date they have been paid $331mm on Book Value. And another $230MM on Performance on book value. Nothing is on market value. Why do we have to eat market value and management book value?

[CoGreenwich&Laight]

Todays FT. Reasons for discounts. Shades of FIH. And justified self preservation reasons to act.

[SafetyinNumbers]

45 minutes ago, CoGreenwich&Laight said:

Im curious, why are you ok with the discount. Why would you not want this to close? Why not take action to close it, whether successful or not, as management will not? Im sure you realize that their managment fee is on the book value, not a discount to book value.  To date they have been paid $331mm on Book Value. And another $230MM on Performance on book value. Nothing is on market value. Why do we have to eat market value and management book value?

I want the discount to close but I don’t want it to happen at the expense of making long term investments. I think they could have marked the portfolio up like Brookfield would and while that would mean a higher share price it would also have meant more fees. I have also seen with ELF.TO that, despite buying back half of the float, paying special dividends, increasing the regular dividend 30x and splitting the stock 100-1, it still trades at a 30%+ discount when they own the most liquid stocks in the world. Ultimately, I’m taking a longer term view and don’t subscribe to your view that they are nefarious actors. 

Edited December 23, 2025 by SafetyinNumbers

[SafetyinNumbers]

12 minutes ago, CoGreenwich&amp;Laight said:

Todays FT. Reasons for discounts. Shades of FIH. And justified self preservation reasons to act.

I think the conclusion is incorrect. The market likes stocks that screen well and holdcos don’t. It’s a market structure issue.

[hobbit]

Prem's take on FIH fees

 

Unknown Analyst

Yes. My second question is regarding the management and the performance fees that Fairfax Financial charges. Above our hurdle rate, the performance piece is tied to the book value and not the share price, which implies that even if the book value goes up and the share price does not Fairfax financials still generate a performance fee. 

I understand that it is tricky to tie it to the share price because the share price could be extremely volatile, it could be $30 today and the book value is $20. So my question is, why don't we pick the minimum of share price and book value? So whichever is the minimum of those 2 prices and then tie the performance fees to that minimum so that you guys only make money in terms of performance when shareholders make money.

V. Watsa

Yes. So it's another very good question. Performance fee is based on performance, long-term performance, 3 years each time. We take it in shares, unless it's selling at more than twice book value, I think, in which case, we have the ability to take cash or shares. It's a fair way to do it, we think. Share price and book values, sometimes the share price will go up way high. I think I don't know if you were the guy in the Fairfax meeting talking about Netflix, Netflix has come down 35% in 1 day. 

So we don't like tying it to share price because we expect that share prices will eventually reflect underlying net asset value or book value. We're very conservative in how we value book values, net asset values. But your point is well taken. And so every -- what you have to do accounting-wise, you have to set up a -- so I think the first time we'll have now 2023 is when the incentive fee will come in and calculate it. But in 2021 and 2022, you'll still have to accrue it but you might have to reverse it. It's only at 2023, 3 years down the road that you'll pay it. But accounting is such, you have to accrue it as it happens, and it goes up and down. And do you want to add that, Chandran?

Chandran Ratnaswami

No, that's exactly right.

Unknown Analyst

That's absolutely fair. And I'm not asking you to tie it to the shareholder like share price. I'm just asking wouldn't it be more prudent to tie it to the minima of share price and book value so that performance fees is only generated when shareholders make money. If the book value is $20 and the share price is $12, you don't make money. If the book value is $30 and the share price is $20, you still don't close. It's the minima of those 2 prices.

V. Watsa

I don't think -- if you review the record, I don't think you'll see anyone who's got minimum of share price or book value.

Unknown Analyst

But we are shareholder-friendly here...

V. Watsa

We'll -- seriously though, we think we can do much better than what we've done in the past. And really, this is not a good time. The stock price is low. The net asset -- India is just coming out of the pandemic. All those assets that Chandran went through are worth a ton, that Bangalore International Airport is talking about going to 90 million customers, 60 million in another few years and then 90 million. And I think it's selling at about $3 billion for the whole thing, right? How long is that going to last? And we got a 16% return on capital, return on equity. So you have to take a long-term view is what I'm saying, but those are very good questions, and thank you for asking them.

[TwoCitiesCapital]

1 hour ago, CoGreenwich&Laight said:

Todays FT. Reasons for discounts. Shades of FIH. And justified self preservation reasons to act.

 

I dunno. While I agree that Auto manufacturers trade for less than book, it doesn't justify a portfolio of them trading for an additional discount above that. If anything, the diversification reduces the execution risks that result in a single OEM trading cheap

[Madpawn]

27 minutes ago, hobbit said:

So you have to take a long-term view is what I'm saying, but those are very good questions, and thank you for asking them

When is this transcript from?