Fairfax India new issue

[Xerxes]

^^

 

One could argue that they already "used up" that $129 million inflow fund to more or less fully fund the $105 million tender offer buyback from August.

 

Only difference is that it was done in reverse orders:  do the tender offer first at very attractive low P/BV and then get the funding for it in Sept from OMERS valuing BIA airport like a fully ripe peach.

 

[ICUMD]

3 hours ago, Xerxes said:

^^

 

One could argue that they already "used up" that $129 million inflow fund to more or less fully fund the $105 million tender offer buyback from August.

 

Only difference is that it was done in reverse orders:  do the tender offer first at very attractive low P/BV and then get the funding for it in Sept from OMERS valuing BIA airport like a fully ripe peach.

 

Or... They could use the proceeds to buy more BIAL which will be divested by the government...

[Viking]

5 hours ago, Xerxes said:

^^

 

One could argue that they already "used up" that $129 million inflow fund to more or less fully fund the $105 million tender offer buyback from August.

 

Only difference is that it was done in reverse orders:  do the tender offer first at very attractive low P/BV and then get the funding for it in Sept from OMERS valuing BIA airport like a fully ripe peach.

 

Cash on the balance sheet at the end of Q2 was $41 million; i thought it was higher given the $165 million in proceeds from the Privi sale  

—————————-

On April 29, 2021 the company completed the sale of its 48.8% equity interest in Privi Speciality for proceeds of $164,812 resulting in a realized gain since inception of $132,303.

[nwoodman]

A little background on the  National Monetisation Pipeline 

 

Indian asset monetization plan boosts ABB Power Products and Systems (capital.com)

 

India aims to raise INR6tn (US81bn) by monetising its assets. But the plan, the largest ever announced by any government since the country’s independence, includes caveats. The regime will grant firms the right to develop road projects, stadiums, airports, railway stations, power transmission lines and gas pipelines for a specified period, akin to a lease, according to guidelines published by government think tank.

[glider3834]

Looks like BIAL UDF fee rate increases will be postponed to start of March 2022 - would expect a negative impact on BIAL valuation - probably have to wait for Q3 to see.

 

https://bangaloremirror.indiatimes.com/bangalore/others/from-april-2022-flying-to-become-a-tad-pricier/articleshow/85964418.cms

 

At June 30, 2021 negotiations between BIAL and AERA in setting tariffs for the third control period were ongoing. In the event that these negotiations develop unfavourably, this may result in a negative impact to the fair value of the company's investment in BIAL.

[nwoodman]

48 minutes ago, glider3834 said:

Looks like BIAL UDF fee rate increases will be postponed to start of March 2022 - would expect a negative impact on BIAL valuation - probably have to wait for Q3 to see.

Perhaps.  Maybe I am being too optimistic but it looks like classic horse trading to me.  What they asked for (ambit claim) versus what they got doesn’t appear too far apart, especially when it is compared to the UDF they are currently charging.  The public hand wringing also was a bit strange.  Classic India?

[ICUMD]

3 hours ago, glider3834 said:

Looks like BIAL UDF fee rate increases will be postponed to start of March 2022 - would expect a negative impact on BIAL valuation - probably have to wait for Q3 to see.

 

https://bangaloremirror.indiatimes.com/bangalore/others/from-april-2022-flying-to-become-a-tad-pricier/articleshow/85964418.cms

 

At June 30, 2021 negotiations between BIAL and AERA in setting tariffs for the third control period were ongoing. In the event that these negotiations develop unfavourably, this may result in a negative impact to the fair value of the company's investment in BIAL.

The airport had an arrangement to get a 16% regulated return via the UDFs.  I wonder if the new tariff arrangements are allowing for that or not.  Of course, tariff price increases are meaningless without knowing if ridership will return or not, which is anyone's guess.

[wondering]

Another investment in Fairfax India

 

https://www.fairfaxindia.ca/news/press-releases/press-release-details/2021/Fairfax-India-Announces-Investment-in-Maxop-Engineering-Company-Private-Limited/default.aspx

[hobbit]

https://thedeepdive.ca/pvc-prices-soar-to-record-high-as-homebuilding-becomes-even-more-expensive/

 

http://www.sunsirs.com/uk/prodetail-368.html

 

Chemplast is marked at 440M on books. It could easily be worth 2x

 

 

Edited September 28, 2021 by hobbit

[petec]

2 hours ago, hobbit said:

It could easily be worth 2x

I don’t know it well. Can you walk me through the summary valuation to get to 2x? Thanks!

[rohitc99]

On 9/10/2021 at 2:59 AM, nwoodman said:

Perhaps.  Maybe I am being too optimistic but it looks like classic horse trading to me.  What they asked for (ambit claim) versus what they got doesn’t appear too far apart, especially when it is compared to the UDF they are currently charging.  The public hand wringing also was a bit strange.  Classic India?

i would suggest being careful wih BIAL valuations. there is precedent (search for noida toll bridge) of past contracts not being honored and even courts allowing for that. public hand wringing is par for the course. a lot of people want world class infra but for free and there are enough politicians to pander to it

 

 

[glider3834]

55 minutes ago, rohitc99 said:

i would suggest being careful wih BIAL valuations. there is precedent (search for noida toll bridge) of past contracts not being honored and even courts allowing for that. public hand wringing is par for the course. a lot of people want world class infra but for free and there are enough politicians to pander to it

 

 

fair point I think the risk of public pressure on politicans is always there with infra assets in any country & Fairfax India team would be aware of that & a consideration when doing a valuation - AERA did push back on BIAL increasing on user tariffs from October to April 2022 but did get the rest of tariff request through - that potentially could affect BIAL valuation although Fairfax have said they believe the valuation is likely to be higher if they IPO. Will have to wait and see in Q3 results if any impact.

 

Is an airport comparable to a toll road though - I see other stakeholders here for example international tourists/workers  & local businesses that benefit from international tourism? Are there higher & lower risk infra assets?  I am not familiar with Noida toll road facts but I would think there would be a lot more potential social impact with a toll bridge or road particularly where people have no choice but to use that road to get to work, shops, schools etc. than say an airport where people are using the airport to fly to another country for a holiday or an international visitor who is returning to US, Europe etc.

 

Also I just read that the Noida toll road is basically a mess so it sounds like a public experiment that has failed - would this be a precedent or a reminder of what happens when commitments are not honoured?  https://timesofindia.indiatimes.com/city/noida/once-an-infrastructure-showpiece-dnd-flyway-is-no-ones-child-now/articleshow/81383601.cms

 

Also with an airport there are key passenger safety & security considerations & these costs that have to be met plus it is a key entry point for international tourists - does the public/international tourists want a safe & secure airport? does the public want their parcels delivered from efficiently from overseas? does the public want attractive gateway for international tourists/workers to attract tourism $s?

 

 

 

 

[rohitc99]

9 minutes ago, glider3834 said:

fair point I think the risk of public pressure on politicans is always there with infra assets in any country & Fairfax India team would be aware of that & a consideration when doing a valuation - AERA did push back on BIAL increasing on user tariffs from October to April 2022 but did get the rest of tariff request through - that potentially could affect BIAL valuation although Fairfax have said they believe the valuation is likely to be higher if they IPO. Will have to wait and see in Q3 results if any impact.

 

Is an airport comparable to a toll road though - I see other stakeholders here for example international tourists/workers  & local businesses that benefit from international tourism? Are there higher & lower risk infra assets?  I am not familiar with Noida toll road facts but I would think there would be a lot more potential social impact with a toll bridge or road particularly where people have no choice but to use that road to get to work, shops, schools etc. than say an airport where people are using the airport to fly to another country for a holiday or an international visitor who is returning to US, Europe etc.

 

Also I just read that the Noida toll road is basically a mess so it sounds like a public experiment that has failed - would this be a precedent or a reminder of what happens when commitments are not honoured?  https://timesofindia.indiatimes.com/city/noida/once-an-infrastructure-showpiece-dnd-flyway-is-no-ones-child-now/articleshow/81383601.cms

 

Also with an airport there are key passenger safety & security considerations & these costs that have to be met plus it is a key entry point for international tourists - does the public/international tourists want a safe & secure airport? does the public want their parcels delivered from efficiently from overseas? does the public want attractive gateway for international tourists/workers to attract tourism $s?

 

 

 

 

I agree noida toll bridge is not a perfect comparison here and i shared it as an example. It was messy to say the least. Government initially promised 20% ROI on cost of the asset and then eventually almost completely reneged on the contract. It was not like ...20% is too high, lets bring it down to 10%. No...it was like , you guys are cheating us and hurting the broader population. Never approved any toll hikes for 10 years and then finally it was taken to the court and the whole thing scrapped

 

i know this closely as i was invested in it

 

 i am from the country (though dont live there now) and have seen a lot of short sighted decisions on a lot of such public infrastructure assets especially when politicians can gain votes by calling the investors as greedy. the typical modus operandi is to renege on toll hikes and keep dragging it on. the worst thing is when these cases, land in the court, it is no different where a judge would pass some kind of a moral argument and ignore the terms of the contract

 

other considerations such as passenger safety, international tourism etc are rational points. however i have seen none of these considered when such decisions are made. no wonder there is not much pvt sector participation in the infrastructure space

 

i am invested in fairfax india, so hoping that does not happen this time around and keeping my fingers crossed.

[glider3834]

13 minutes ago, rohitc99 said:

I agree noida toll bridge is not a perfect comparison here and i shared it as an example. It was messy to say the least. Government initially promised 20% ROI on cost of the asset and then eventually almost completely reneged on the contract. It was not like ...20% is too high, lets bring it down to 10%. No...it was like , you guys are cheating us and hurting the broader population. Never approved any toll hikes for 10 years and then finally it was taken to the court and the whole thing scrapped

 

i know this closely as i was invested in it

 

 i am from the country (though dont live there now) and have seen a lot of short sighted decisions on a lot of such public infrastructure assets especially when politicians can gain votes by calling the investors as greedy. the typical modus operandi is to renege on toll hikes and keep dragging it on. the worst thing is when these cases, land in the court, it is no different where a judge would pass some kind of a moral argument and ignore the terms of the contract

 

other considerations such as passenger safety, international tourism etc are rational points. however i have seen none of these considered when such decisions are made. no wonder there is not much pvt sector participation in the infrastructure space

 

i am invested in fairfax india, so hoping that does not happen this time around and keeping my fingers crossed.

Me too - I am invested in FFH so indirectly in FIH 

 

I would not rule out a negative mark on BIAL this qtr due to delayed tariff implementation, but then there is the buyback & unrealised gain on share portfolio that would potentially counter-weight book value impact.

 

Fairfax are betting big on infra in India & see potential here  & the NMP rollout will be a key test for Govt - these things are never easy to do with complex social/economic considerations - lets hope they get it right for the most part 

[nwoodman]

27 minutes ago, rohitc99 said:

no wonder there is not much pvt sector participation in the infrastructure space

Indeed, and India has suffered.  Programs like the proposed NMP Seem well considered and a sign that things are changing.  There will be bumps in the road, but iit is a massive opportunity for India to advance and meet it's  full potential.

[Viking]

Given the recent large share buyback by Fairfax India i was wondering what Fairfax’s ownership position now sits at. Answer? 36.6%

 

I am including all Riverstone UK shares in this calculation. 

 

Fairfax India certainly has been a very good investment for Fairfax. Over the past 6.5 years Fairfax India is built an outstanding collection of companies and book value has been growing nicely (sits at US$20 with new share count). Fairfax has seen its ownership % of Fairfax India increase significantly from 28% to 36.6% today = 31% increase in 6.5 years.
 

And as Fairfax India continues to buy back shares (likely aggressively given how low the stock price is today) and pay Fairfax its performance fee in shares we should see Fairfax’s ownership of Fairfax India top 40% in the next couple of years. 

———————————-

Math: Fairfax owns 52.104 million share of Fairfax India. As of Aug 2021 Fairfax India had 142.277 million shares outstanding (after dutch auction).

 

Dec 31, 2019 Fairfax owned 51.558 million shares of Fairfax India (page 115 FI AR). In March of this year Fairfax earned 546,000 additional shares (3 year performance fee).

————————————
Here is an approximate summary of the approximate step up in Fairfax’s share ownership in Fairfax India.:

1.) Back in Jan 2015 (inception) Fairfax owned 28% of Fairfax India (30 million shares). 
2.) Jan 2017 capital raise Fairfax boosted their stake to 30.2% (+12.34 million shares). 

3.) 3 year performance fee payment to Dec 2017 (paid in shares) boosted share to 33.6% (7.664 million shares). 

4.) 3 year performance fee payment to Dec 2020 = 546,000 shares. 

[glider3834]

6 minutes ago, Viking said:

Given the recent large share buyback by Fairfax India i was wondering what Fairfax’s ownership position now sits at. Answer? 36.6%

 

I am including all Riverstone UK shares in this calculation. 

 

Fairfax India certainly has been a very good investment for Fairfax. Over the past 6.5 years Fairfax India is built an outstanding collection of companies and book value has been growing nicely (sits at US$20 with new share count). Fairfax has seen its ownership % of Fairfax India increase significantly from 28% to 36.6% today = 31% increase in 6.5 years.
 

And as Fairfax India continues to buy back shares (likely aggressively given how low the stock price is today) and pay Fairfax its performance fee in shares we should see Fairfax’s ownership of Fairfax India top 40% in the next couple of years. 

———————————-

Math: Fairfax owns 52.104 million share of Fairfax India. As of Aug 2021 Fairfax India had 142.277 million shares outstanding (after dutch auction).

 

Dec 31, 2019 Fairfax owned 51.558 million shares of Fairfax India (page 115 FI AR). In March of this year Fairfax earned 546,000 additional shares (3 year performance fee).

————————————
Here is an approximate summary of the approximate step up in Fairfax’s share ownership in Fairfax India.:

1.) Back in Jan 2015 (inception) Fairfax owned 28% of Fairfax India (30 million shares). 
2.) Jan 2017 capital raise Fairfax boosted their stake to 30.2% (+12.34 million shares). 

3.) 3 year performance fee payment to Dec 2017 (paid in shares) boosted share to 33.6% (7.664 million shares). 

4.) 3 year performance fee payment to Dec 2020 = 546,000 shares. 

thanks for the update Viking 

[petec]

Can someone remind me what price per share FIH is carried at on the FFH balance sheet? Or do they consolidate the individual holdings at the FFH level? The answer is buried deep in my notes but it's easier to ask!

[wondering]

I am pretty sure they consolidate FIH at the FFH level

[TwoCitiesCapital]

3 hours ago, wondering said:

I am pretty sure they consolidate FIH at the FFH level

 

Not an accounting professional, but I think this is right. 

 

My understanding is you have to consolidate anything where you have substantial control. Hard to argue that isn't the case here regardless of their % ownership. 

[Viking]

4 hours ago, petec said:

Can someone remind me what price per share FIH is carried at on the FFH balance sheet? Or do they consolidate the individual holdings at the FFH level? The answer is buried deep in my notes but it's easier to ask!

Page 10 of FFH 2020AR has ‘carrying value’ of $9.66/share. 
Q2 BV (adjusted for share buyback) is $20.

Stock is trading at $13.

 

 

[petec]

10 minutes ago, Viking said:

Page 10 of FFH 2020AR has ‘carrying value’ of $9.66/share. 
Q2 BV (adjusted for share buyback) is $20.

Stock is trading at $13.

 

 

This is what I was getting at. Thanks. 
 

I think when FFH report their excess of fair value over carrying it includes the gap from 9 to 13, but not the gap from 13 to 20?

[glider3834]

1 hour ago, petec said:

This is what I was getting at. Thanks. 
 

I think when FFH report their excess of fair value over carrying it includes the gap from 9 to 13, but not the gap from 13 to 20?

Yep thats right 

 

 

 

 

[Viking]

Fairfax India has had a very active 2021. They had two sales booking large gains. They made two small acquisitions with one being a brand new position in a new industry. Completed a relatively large share buyback. Former private holding completed IPO. Another private holding is looking to go public via IPO.

 

The Anchorage sale is informative. One of the theories for why Fairfax India is trading so far under BV ($13 vs $20) is no one believes the valuation of BIAL that is reflected in BV. Fairfax India now owns 10% less of BIAL and was able to monetize the position at full value. Yet the shares continue to trade at $13. 
 

I wonder if Fairfax cares about the very low price of Fairfax India. I wonder why someone like OMERS does not approach Fairfax about taking it private. Great way for a big pension fund like OMERS to get exposure to India; solid management; great assets; cheap price. Maybe they go 50/50 with Fairfax   

————————

Summary of Fairfax India activities:

1.) April: sale of Privi for $163 million; gain was $134.6 million.

2.) April: increased stake in Fairchem Organics

- added 2.331 million shares; cost $18.1 million; ownership increase from 48.8% to 66.7%

3.) Aug 11: completion of dutch auction

- 7.047 million shares repurchased at cost of $14.90/share ($105 million)

- buyback increased BV to $20/share (was $19.26)

4.) Chemplast Sanmar IPO completed

- proceeds used to reduce debt which is very high; another example of getting a holding in the proper position to succeed moving forward.

- this is a significant position for Fairfax India; will now be much easier to value the position
5.) Sept 16: Anchorage sale completed for proceeds of $129 million

- effective ownership of BIAL reduced from 54% to 49%

6.) Sept 16: new investment in Mapox Engineering Corp

- $30 million for 51% in Q4; $36 million for 16% in 2H 2022

 

pending:

7.) Seven Islands IPO

I think there has also been mention of a possible Anchorage IPO in 2022. Something to watch.

Edited September 29, 2021 by Viking

[ICUMD]

38 minutes ago, Viking said:

Fairfax India has had a very active 2021. They had two sales booking large gains. They made two small acquisitions with one being a brand new position in a new industry. Completed a relatively large share buyback. Former private holding completed IPO. Another private holding is looking to go public via IPO.

 

The Anchorage sale is informative. One of the theories for why Fairfax India is trading so far under BV ($13 vs $20) is no one believes the valuation of BIAL that is reflected in BV. Fairfax India now owns 10% less of BIAL and was able to monetize the position at full value. Yet the shares continue to trade at $13. 
 

I wonder if Fairfax cares about the very low price of Fairfax India. I wonder why someone like OMERS does not approach Fairfax about taking it private. Great way for a big pension fund like OMERS to get exposure to India; solid management; great assets; cheap price. Maybe they go 50/50 with Fairfax   

————————

Summary of Fairfax India activities:

1.) April: sale of Privi for $163 million; gain was $134.6 million.

2.) April: increased stake in Fairchem Organics

- added 2.331 million shares; cost $18.1 million; ownership increase from 48.8% to 66.7%

3.) Aug 11: completion of dutch auction

- 7.047 million shares repurchased at cost of $14.90/share ($105 million)

- buyback increased BV to $20/share (was $19.26)

4.) Chemplast Sanmar IPO completed

- proceeds used to reduce debt which is very high; another example of getting a holding in the proper position to succeed moving forward.

- this is a significant position for Fairfax India; will now be much easier to value the position
5.) Sept 16: Anchorage sale completed for proceeds of $129 million

- effective ownership of BIAL reduced from 54% to 49%

6.) Sept 16: new investment in Mapox Engineering Corp

- $30 million for 51% in Q4; $36 million for 16% in 2H 2022

 

pending:

7.) Seven Islands IPO

I think there has also been mention of a possible Anchorage IPO in 2022. Something to watch.

Things will get really interesting once Anchorage goes IPO on the Indian stock exchange.  Omers is essentially their partner already. Monetizing the airport to the tune of 2 billion USD will really allow them to go on an infrastructure spending spree as the government divests prized assets.  

 

If there is any doubt to the market value of BIAL now, one only had to look at what was paid for other airports under the Private partnership plan.

 

It's hard to interpret share price on low trading volumes.  Now, with Fairfax having issued a new course issuer bid for another 5%  of outstanding shares, hopefully more low priced shares will be sopped up.