Fairfax India new issue

[hobbit]

one has to take these speculative news articles with a grain of salt since a lot of the times in the past they have been proven to be wrong. FIH might well be exploring a sale of BIAL if they can get something north of $2B which is what they were expecting in an IPO and would be in line with the recent airport transactions in India. If they can capture most of the upside that they would get in an IPO without having to worry about approvals causing delays etc it might not be a bad idea. However investing it into IDBI might be a very risky bet. One condition to bid for IDBI is to have a minimum of $2.85 B in equity and if you combine BIAL(2B) + Fairchem(250 MM ) + IIFL wealth(190 MM) + possibly NSE(250 MM ) too + cash (200MM) , that is where FIH is headed.  

Edited October 27, 2022 by hobbit

[rohitc99]

https://www.livemint.com/companies/news/fairfax-eyes-1-5-bn-in-bangalore-airport-exit-11666808036906.html

[Viking]

2 hours ago, hobbit said:

one has to take these speculative news articles with a grain of salt since a lot of the times in the past they have been proven to be wrong. FIH might well be exploring a sale of BIAL if they can get something north of $2B which is what they were expecting in an IPO and would be in line with the recent airport transactions in India. If they can capture most of the upside that they would get in an IPO without having to worry about approvals causing delays etc it might not be a bad idea. However investing it into IDBI might be a very risky bet. One condition to bid for IDBI is to have a minimum of $2.85 B in equity and if you combine BIAL(2B) + Fairchem(250 MM ) + IIFL wealth(190 MM) + possibly NSE(250 MM ) too + cash (200MM) , that is where FIH is headed.  

@hobbit great point. A bunch of speculation right now. What is interesting is the share price has not really moved. Why?

1.) Fairfax India is not followed - so outside of a few on this board - no one knows what might be going on

2.) sale/value of BIAL for $1.5 billion is already baked into the share price of Fairfax India

3.) sale of BIAL is hoax - pure misinformation being spread by some unknown entity for unknown reasons

Also, sales like BIAL are likely to take an enormous amount of time to close… so perhaps Mr Market is shrugging and saying “we’ll believe it only when something official is announced”.

—————

it looks to me like we have a set up right now with Fairfax India shares that Stanley Druckenmiller would like like. Nice new upside catalyst being priced at zero right now by Mr Market. I added some shares today  

[Daphne]

TORONTO, Oct. 27, 2022 (GLOBE NEWSWIRE) -- Fairfax India Holdings Corporation (“Fairfax India” or the “Company”) (TSX: FIH.U) reaffirms that while its general practice is not to comment on market speculation, the Company confirms that contrary to some recent media reports, the Company is a long-term shareholder of Bangalore International Airport Limited (“BIAL”) and has no intention of selling its ownership interest in BIAL.
 

[glider3834]

5 minutes ago, Daphne said:

TORONTO, Oct. 27, 2022 (GLOBE NEWSWIRE) -- Fairfax India Holdings Corporation (“Fairfax India” or the “Company”) (TSX: FIH.U) reaffirms that while its general practice is not to comment on market speculation, the Company confirms that contrary to some recent media reports, the Company is a long-term shareholder of Bangalore International Airport Limited (“BIAL”) and has no intention of selling its ownership interest in BIAL.
 

well that settles it 

[TwoCitiesCapital]

1 hour ago, Daphne said:

TORONTO, Oct. 27, 2022 (GLOBE NEWSWIRE) -- Fairfax India Holdings Corporation (“Fairfax India” or the “Company”) (TSX: FIH.U) reaffirms that while its general practice is not to comment on market speculation, the Company confirms that contrary to some recent media reports, the Company is a long-term shareholder of Bangalore International Airport Limited (“BIAL”) and has no intention of selling its ownership interest in BIAL.
 

 

Nice!

[longlake95]

Okay, good!

[ICUMD]

Darn.  Was curious to see how the market valued 1.5 - 2 billion cash + 1 billion in equities.

 

 

[hobbit]

The Prem Watsa-owned company that runs Bengaluru airport has charted a course that has seen it grow steadily and profitably, and bridge the gap to its peers in Delhi and Mumbai. The challenge of monetizing a large expansion lies ahead

 

 

Last week, Mint reported that Fairfax India Holdings Corporation, controlled by Canadian billionaire Prem Watsa, was planning to sell its 54% stake in Bangalore International Airport Ltd (BIAL). For now, Fairfax has denied this, saying it was a “long-term shareholder". Whichever way it goes, the Bengaluru airport has been a prime asset in Indian aviation as it has competed with its larger peers at Delhi and Mumbai. That’s why Watsa’s moves will be keenly watched.

In the five-and-a-half years of Fairfax at the helm, BIAL has basked in profitable growth and endured a shutdown, and continued with a planned expansion despite some of its cash flows not materializing. Between 2011-12 and 2018-19 (the last full year unaffected by the pandemic), the airport registered higher growth in passenger numbers than Delhi and Mumbai, in both domestic and international segments. Bengaluru’s growth did come on a lower base, though the difference in size is more pronounced in the international segment than in the domestic segment.

 

As a result of this higher growth, Bengaluru has bridged the gap with both Delhi and Mumbai, especially in the domestic segment. For example, in 2011-12, for every 100 domestic flights that left Delhi, 46 took off from Bengaluru. In 2018-19, this figure for Bengaluru had increased to 61 and was close to matching the 67 of Mumbai, which was constrained by capacity. The pandemic disrupted this time series and business plans. But as Indians take to the skies again, the relative growth of India’s three largest airports—which also intersects with demographic shifts—will be keenly watched.

 

 

Crown jewel

In Fairfax India’s portfolio, BIAL is the jewel, be it on size, visibility, returns or value to be unlocked. Fairfax India made its first investment in August 2015. As of 31 December 2021, it had invested $1.79 billion. Given the value of its listed holdings on the stock market and Fairfax’s internal estimates for unlisted holdings (like BIAL), it listed its portfolio’s fair value as $3.34 billion. BIAL accounted for 41% of the portfolio value and 46% of its underlying appreciation.

In September 2021, the sale of a minority stake to a Canadian pension fund valued BIAL at $2.6 billion. Fairfax India expected a subsequent planned listing of a holding company, which hasn’t happened yet, to raise that to $2.9 billion. In its 2021 annual report, it said: “The marketability of BIAL to large pension funds and strategic global airport operators, even as an unlisted company, is very high…we believe that it [true value] could be much higher than $2.9 billion."

 

 

Growth flight

While Delhi and Mumbai airports were privatized in 2006, Bengaluru came up from scratch in 2008. Fairfax took over from GVK Group as the principal shareholder in 2017. The other shareholders currently are Siemens (20%), the government of Karnataka (13%) and the government of India (13%). Airports have two broad revenue streams: aero (what they charge airlines for navigation, parking, ground handling) and non-aero (rentals, shops, advertising). While a split for BIAL is not available, the company that owns the Delhi airport derived 30% of its 2018-19 operational revenue from the aero side and 70% from the non-aero side.

 

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Why Bengaluru airport is a prized aviation asset

 

The decade leading up to the pandemic was one of healthy growth for Indian aviation, both airlines and airports. According to Fairfax India, between 2009 and 2019, aero revenues of BIAL grew at a compounded annual growth rate of 16% and non-aero revenues at 17%. It was also highly profitable, earning a net margin of 33-42% between 2016 and 2019, before the pandemic wrecked its numbers.

 

 

Funding an expansion

For BIAL, the pandemic came at an inopportune time. In December 2019, it started its second runway. To its first terminal, which handled 33 million passengers in 2018-19, it is adding a second terminal: first phase this calendar (to handle another 25 million passengers) and second phase in 2028-29 (20 million). A tripling of capacity will give it infrastructure to bridge the gap to Delhi and Mumbai further.

In 2018-19, BIAL’s had revenues of about ₹1,440 crore. This was only about 38-39% of Delhi and Mumbai, which lead in international traffic. BIAL, though, does better on profitability.

 

At the same time, its aero revenues are likely to be lower than expected as the regulator has cleared a smaller increase in per passenger fee that BIAL can charge airlines from 2022-26. Balancing expansion with growth and profitability will test BIAL in the coming years.

[hobbit]

https://www.hindustantimes.com/cities/bengaluru-news/bengaluru-airport-back-to-pre-covid-passenger-levels-101667630490581.html

 

1 year ahead of schedule

[valueinvesting101]

1 hour ago, hobbit said:

https://www.hindustantimes.com/cities/bengaluru-news/bengaluru-airport-back-to-pre-covid-passenger-levels-101667630490581.html

 

1 year ahead of schedule

That's a great news. I felt company's projection about increase in traffic were too conservative as it enables them to ask for higher fee/passengers from regulator. If traffic turns out to be higher/lower than expected then rates are supposed to be adjusted after 2.5 year during the 5 year assessment period. As with most of the things in government and especially with Indian government these mid cycle evaluation can take 2-3 years. 

Hopefully higher passenger growth will lead to higher cashflows in near term and easing with debt burden. 

 

[ICUMD]

3 hours ago, hobbit said:

https://www.hindustantimes.com/cities/bengaluru-news/bengaluru-airport-back-to-pre-covid-passenger-levels-101667630490581.html

 

1 year ahead of schedule

Puzzling since they saw 33 million passengers FY 2018-19.  I suspect they are now seeing monthly pre covid numbers.

 

Here's a peek preview on T2:

 

 

 

[glider3834]

[glider3834]

On 11/8/2022 at 9:29 AM, ICUMD said:

Puzzling since they saw 33 million passengers FY 2018-19.  I suspect they are now seeing monthly pre covid numbers.

 

Here's a peek preview on T2:

 

 

 

https://m.economictimes.com/news/india/watch-inside-visuals-of-bengalurus-newly-inaugurated-airport-terminal-2/videoshow/95475394.cms

 

They expect T2 will be operating in 1 to 1.5 mths - they are up to 16.8M to Oct-22 with T1 - so i think that puts them on trajectory of 28-29M just with T1 - then we add 3 mths of T2 passengers ???- although i think they will ramp up slowly. Both terminals can do up to 60M.

 

Looks amazing - they are really pushing in terms of tech, sustainability 

 

 

 

 

 

 

Edited November 14, 2022 by glider3834

[ICUMD]

Looks like there are indeed other interested investors in BIAL...  may not have been entirely rumor that buyout offer.

 

https://www.livemint.com/companies/news/adani-group-weighs-acquiring-stake-in-bengaluru-airport-11668362140321.html

 

May help with proper valuation of the airport.  

 

The next 1-2 yrs will see explosive growth in passenger numbers. 

[nwoodman]

3 hours ago, ICUMD said:

Looks like there are indeed other interested investors in BIAL...  may not have been entirely rumor that buyout offer.

 

https://www.livemint.com/companies/news/adani-group-weighs-acquiring-stake-in-bengaluru-airport-11668362140321.html

 

May help with proper valuation of the airport.  

 

The next 1-2 yrs will see explosive growth in passenger numbers. 

Interesting.  This link was paywalled for me but this one seems like a reprint

 

https://newsboring.com/adani-eyes-stake-at-bengaluru-airport-news-boring/

 

So it sounds like rumours were kind of right, it sounds like Adani has been in talks with Fairfax, perhaps a joint bid, for the forthcoming 13% Airports Authority of India (AAI) stake.  Easy to see why they have been raising cash, Prem thinks there are some fat pitches coming his way.

 

MS was out recently with a breathless piece on why this will be India’s decade. I will post it in the macro thread. Some excerpts:

 

“We believe India is set to become the world’s third-largest economy and stock market by the end of this decade. As a consequence, India is gaining power in the world economy, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies.”

 

“If India is already the 'office to the world', it is increasingly becoming its factory as well. We anticipate a wave of manufacturing capex owing to government policies aimed at lifting corporate profits' share of GDP via tax cuts and hard dollars for investing in specific sectors, and we note that performance-linked incentive (PLI) schemes now total US$33bn across 14 sectors. Multinationals are more optimistic than ever about investing in India, as the alltime high on our MNC Sentiment Index shows ( Exhibit 37 ), and the government is encouraging investment by both building infrastructure and supplying land for factories. The trends outlined in Morgan Stanley’s multipolar world thesis and cheap labor add to the mix. We estimate that manufacturing's share of GDP will rise from 15.6% currently to 21% by 2031, which implies nominal output jumping from US$447bn to about US$1.49trn”

 

I think there is value in India but there is a material sovereign risk too.  However, if it does come to pass, assets like the BIAL are going to look very cheap in hindsight and potentially insanely cheap in USD terms.  FFH remains my preferred way to gain EM exposure.

[vakilkp]

Bangalore airport IPO could be coming next year.  

https://www.livemint.com/market/ipo/bangalore-airport-ipo-could-be-coming-next-year-11668658807809.html

[Saluki]

I trimmed a little of my FFH position yesterday in my retirement account, which saw a bump, and redeployed it to more Fairfax India. Fairfax India is still selling below the previous FFH tender offer, and as the world starts travelling again BIAL will be able to unlock value. Seems like a favorable time to add shares. An IPO will give clarity on the pricing of the sum of the parts, which I believe the market is undervaluing. 

[StubbleJumper]

10 hours ago, vakilkp said:

Bangalore airport IPO could be coming next year.  

https://www.livemint.com/market/ipo/bangalore-airport-ipo-could-be-coming-next-year-11668658807809.html

 

Interesting timing.  As I recall, FFH is scheduled to be paid a performance fee on December 31, 2023 if Fairfax India's book value grows sufficiently.  So, is this IPO conveniently timed in a way that will enable a re-marking of Fairfax India's entire Bangalore Airport holding a few months before that performance fee calculation is made?

 

 

SJ

[Saluki]

4 minutes ago, StubbleJumper said:

 

Interesting timing.  As I recall, FFH is scheduled to be paid a performance fee on December 31, 2023 if Fairfax India's book value grows sufficiently.  So, is this IPO conveniently timed in a way that will enable a re-marking of Fairfax India's entire Bangalore Airport holding a few months before that performance fee calculation is made?

 

 

SJ

 

I believe the performance fee kicks in at the previous high water mark ($13?). If the FFX India gets repriced higher, FFH will not only get a performance fee, but they will also benefit from marking to market the big slug of FFX India that they bought back in the tender. The new (terrible) accounting rules make you report unrealized gains/losses as income.  FFX India is up 10% today, I wish I had bought more yesterday

[hobbit]

FIH should be trading at $30 +,  looking at IIFl finance, BIAL, NSE, Chemplast ...thats the  fair value as of today. Alas, it may never be realized

Edited November 17, 2022 by hobbit

[ICUMD]

2023 should be an exceptional year for Fairfax India. 

 

Confluence of pent up chronic undevaluation and underrecognition. T2 BIAL completion with end of covid restrictions. Pent up travel demand, China restrictions favoring Indian interests etc.

 

Pile that on a very thinly traded equity with excellent management and improving capitalization, odds of strong returns are very good indeed.

 

 

[Crip1]

12 hours ago, Saluki said:

I trimmed a little of my FFH position yesterday in my retirement account, which saw a bump, and redeployed it to more Fairfax India. Fairfax India is still selling below the previous FFH tender offer, and as the world starts travelling again BIAL will be able to unlock value. Seems like a favorable time to add shares. An IPO will give clarity on the pricing of the sum of the parts, which I believe the market is undervaluing. 

Based on FFI's share price today. I'd personally appreciate a heads up on your next move.

 

-Crip

[no_free_lunch]

Thanks for everyone's commentary. I will continue to hold. My only concern is management fees but as was noted we are still likely below high water mark.   Just too cheap to ignore and yet BV should actually increase.  I like the setup.

 

It seems the various sanctions and disinvestment against China should be to Indias benefit as well. Probably a longer term phenomenon but always good to have tailwinds.

 

Edited November 18, 2022 by no_free_lunch

[SafetyinNumbers]

1 hour ago, no_free_lunch said:

Thanks for everyone's commentary. I will continue to hold. My only concern is management fees but as was noted we are still likely below high water mark.   Just too cheap to ignore and yet BV should actually increase.  I like the setup.

 

It seems the various sanctions and disinvestment against China should be to Indias benefit as well. Probably a longer term phenomenon but always good to have tailwinds.

 

 

Ironically, people not wanting to own FIH because of the performance fee makes the performance fee more expensive given it's paid in shares. The performance fee is part of the deal and ideally we want to pay as much as possible because it means book value is growing quickly! The bigger part of the return for us buying at these levels is probably going to be the closing of the discount. The only strategy, FIH has to close the discount is to buyback stock which they are doing. Perhaps more aggressively once the IIFL deal closes.

 

There is currently $34m accrued for the performance fee due on Dec 31, 2023 so I guess that means it's above the high water mark. Most holdcos with big discounts don't have such strong performance and thus justify their discounts. The FIH discount should be a lot smaller based on performance alone. Perhaps if the BIAL mark goes up a lot, it will help bring on new investors to help close the discount to something more reasonable if one is necessary at all. Ideally, we trade at a premium to book at some point to give the team a low cost of capital to take advantage of what seem like a multitude of opportunities in India.

Edited November 18, 2022 by SafetyinNumbers
Adding more detail