Fairfax India new issue

[Haryana]

Cautious reporting on IDBI takeover by Fairfax owned IIFL. 

https://www.indiainfoline.com/news/companies/fairfax-emerges-frontrunner-for-idbi-bank-stake-sale-proposed-5-5-billion-deal-could-be-a-landmark-privatisation

[Txvestor]

20 hours ago, SafetyinNumbers said:

How do you gauge this? 

Just look at the process, it's been dragged out, withdrawn, and restarted, and there are only 2 bidders remaining and the prices being reported are below where it was trading a few months ago. None of that speaks to strong demand. 

[SafetyinNumbers]

1 hour ago, Txvestor said:

Just look at the process, it's been dragged out, withdrawn, and restarted, and there are only 2 bidders remaining and the prices being reported are below where it was trading a few months ago. None of that speaks to strong demand. 

I see it differently. The process was always going to take a long time (4 years so far in this case). They negotiate terms before price. It’s a big investment in time to find out the price wasn’t close to expectations. I think it also depends on government goals. Selling to a large established Indian bank probably means job cuts. Selling to Fairfax means a chance to create a global champion. I also don’t think taking an efficient market lens is correct here. The float was only 5% so was squeezed higher on speculation. The price was always going to be lower. It has to be low enough so the public doesn’t tender.

[Txvestor]

6 hours ago, SafetyinNumbers said:

I see it differently. The process was always going to take a long time (4 years so far in this case). They negotiate terms before price. It’s a big investment in time to find out the price wasn’t close to expectations. I think it also depends on government goals. Selling to a large established Indian bank probably means job cuts. Selling to Fairfax means a chance to create a global champion. I also don’t think taking an efficient market lens is correct here. The float was only 5% so was squeezed higher on speculation. The price was always going to be lower. It has to be low enough so the public doesn’t tender.

So why was an external bank like a large North American bank, Japanese bank etc not involved or even apparently interested. $5B is Chump change for JPM or Mitsubishi and well worth it to get a strong foothold in an emerging economy like India. I understand the gov't may have different priorities but to say this was a super competitive and efficient bid process would be a stretch. 

Edited Thursday at 09:23 PM by Txvestor

[SafetyinNumbers]

7 minutes ago, Txvestor said:

So why was an external bank like a large North American bank, Japanese bank etc involved or even apparently interested. $5B is Chump change for JPM or Mitsubishi and well worth it to get a strong foothold in an emerging economy like India. I understand the gov't may have different priorities but to say this was a super competitive and efficient bid process would be a stretch. 

It might be chump change but it’s a big distraction and riskier for JPM or Mitsubishi when they don’t understand the culture. You might be right but that’s what makes a market. 

[Hoodlum]

On 7/15/2026 at 6:44 AM, rajpgokul said:

 

A very valid question and you are right to be skeptical.

 

Background:

I live and invest in India - I would rate 'IDBI Bank' as an 'above-average' investment opportunity which doesn't clear my local hurdle rate, but I still believe this is a great deal for Fairfax Financial. To provide better background - Fairfax Financial is 17% of the global fund I manage, IIFL Finance is 10% of fund (we own 1.7% of the firm), Fairfax India is 2% and IIFL Capital is 2% of the fund. All these have been long term holdings for us 5+ years and IIFL group has been in my personal portfolio for 15 years now. 

 

Why winning IDBI is great for Fairfax:

 

1.) IDBI is not a standalone deal, but it would boost all Indian financial investments of Fairfax 

 

My guess is that - Fairfax will form a bank holding firm which will hold IDBI Bank, IIFL Finance, IIFL Capital and Go Digit as their subsidiaries in 1 integrated group framework. In Indian context, a bank is the central core around which the highly valued capital light businesses can be built and scaled. In most verticals like asset management, insurance, institutional brokerage etc - the banking subsidiaries own the largest market share as they have the brand, balance sheet, customer relationship and distribution network. 

 

IIFL Group and Go Digit have been able to build large scale businesses despite not having a core banking shareholder. WIth a bank backing them and providing them with all its advantages, they can move to the next level in terms of growth and profitability. For example, the cost of funding for a bank backed firm will be 100+ bps lower (higher credit ratings) and can directly mean a 5% ROE improvement. Similarly, valuation multiple can go up 50% by being aligned with a bank for all these entities. The group will have good cross-sell synergies across - banking, broking, wealth management, asset management, life insurance, general insurance, reinsurance, investment banking and asset financing. I would expect a 1 billion USD uplift in valuation across their Indian financial investments with IDBI in the loop. 

 

Fairfax increasing its position in IIFL Capital to 51%, IIFL Finance moving a shareholder resolution to raise 1.3 billion USD of equity (July 24th vote) and taking a direct stake in Digit ealier this year are points to be noted. Indian central bank (RBI) has also been pushing banks to move their insurance (regulated by IRDAI), NBFC or asset management (regulated by SEBI) arms into seperately listed firms. Hence, my guess. 

2.) IDBI is an A+ asset that has been run badly

IDBI like several other public sector banks is mismanaged and not run to its true potential. IDBI has a phenomenal deposit franchise that is very difficult to replicate. The issues that you mention are all due to their lending ability that used to be mired in corruption and bad culture that comes along with having Government as your ultimate owner. They asset side has been cleaned up over the last several years and Fairfax gets a clean slate on the asset side that they can build upon.

 

IDBI's cost of funds is like 4.7% (250 bps below G-Secs) with a 45% CASA ratio. Almost a 18 billion USD CASA book that is sticky and hasn't left them even in tough situtations. This is very valuable. In CSB bank turnaround, Fairfax quickly fixed the lending side and has been able to grow their asset book at 25% type CAGR, but they haven't been able to build their deposit book. That experience should have reinforced into them as to how valuable this sticky deposit franchise is. I would say, with the current bank licensing conditions, it would take 15 years for any small bank and new licensee to build a CASA or deposit book of this size. 

 

IIFL Finance is a co-lending partner of IDBI even now. This along with running CSB for 5+ years should give Fairfax the necessary knowledge to build up the asset side without taking excessive credit risks. IDBI bank currently earns 13% ROE purely from the deposit side advantages. Fairfax should be able to build a good credit book and move it to 16-18% ROE along with all the low hanging fruits that comes with an ownership and culture change. The large CASA base will allow them to build prime retail and corporate loans that compound value with minimal volatility. 

 

3.) Large ticket size compounding for the next 20 years

 

At a 5.7 billion USD cheque size, there are few opportunities of this scale for Fairfax. I (similar to the folks at Fairfax) believe that India is a secular growth story for the next 20 years and has the potential to be a 20+ trillion USD economy in that time frame. India currently has 4 large private banks and 3 large public sector banks. I believe that 5 of these large banks will continue to be the Top-5 even then. 

 

Indian large private sector banks have a 10 year average valuation of 3X book value. Fairfax is buying IDBI at 1.15X closing book value. If the turnaround doesn't materialize, they will still be able to exit the business at 1X book value on a conservative basis. On the upside, they can compound earnings at 16-18% CAGR for the next 10+ years and the valuation can double in that time-frame. The INR has gone through a large depreciation cycle over the last 2 years and well placed for lower hit in the coming decade. The absolute dollar returns/ money multiple from this deal can be super attractive even with decent execution. 

 

The overall set-up looks asymmetric to me with a juicy Risk-Reward for that ticket size.

@rajpgokul Thanks for sharing this.  You had mentioned that IIFL Finance would be raising $1.3 US through issuing of shares.  When I reviewed the BSE notice, I only see reference to 10,000 Crore being raised through new shares.  I believe this is the equivalent of $100M US unless I am not calculating it correctly.  Could you confirm where you saw the $1.3B US figure or are you including the additional $1B US in medium term notes.

 

https://www.bseindia.com/xml-data/corpfiling/AttachLive/817e6eb4-7e92-426a-9490-e60f741fe609.pdf

Edited 1 hour ago by Hoodlum