Fairfax India new issue

[dartmonkey]

3 hours ago, ICUMD said:

Hard to fully anticipate, but I suspect iDBI is a prized asset.  Either Kotak or Fairfax will work with officials to discuss options to make the buyout possible, rather than walk away.   Maybe it does mean that Fairfax needs to join CSB with IDBI.  

 

Now just a hunch, but RBI could prefer the Fairfax India offer since Kotak is much larger than CSB. 2 large banks (Kotak + IDBI) combining would undermine competition vs a smaller bank (CSB) and larger (IDBI).  They may also wish to attract more foreign ownership in banking.

 

 

Any idea why Fairfax would be so reluctant to merge the 2 banks?

[ICUMD]

1 hour ago, dartmonkey said:

Any idea why Fairfax would be so reluctant to merge the 2 banks?

Could be a number of reasons.

 

1. Allow for a longer runway to raise funds and do a gradual buyout over a few years.

 

2. Keep management and branding separate for CSB and IDBI. They operate in different spheres.

 

3. Independent bank licenses are better than one for bank listing. 

[nwoodman]

IIRC don’t they have to sell down CSB over time as a condition of the IPO.  Gets awfully complicated if they were to merge entities.  Thinking about it further this is probably why Prem wants another toehold, with control, in the Indian banking sector.

[This2ShallPass]

On 5/18/2023 at 5:59 AM, ICUMD said:

Looks like Fairfax India is in a strong running position for IDBI bank, results anticipated for June.

How will Fairfax India pay for IDBI, can they afford it?

[ICUMD]

1 hour ago, This2ShallPass said:

How will Fairfax India pay for IDBI, can they afford it?

They have indicated that they will obtain partners, which could include the parent company- Fairfax, to make the purchase.

[This2ShallPass]

14 hours ago, ICUMD said:

They have indicated that they will obtain partners, which could include the parent company- Fairfax, to make the purchase.

IDBI current market cap ~$7.3B, with premium you're looking at ~$8B and to get a majority stake need >$4B. Can Fairfax India be the main owner with partners, they still need ~$2B right?

[ICUMD]

3 hours ago, This2ShallPass said:

IDBI current market cap ~$7.3B, with premium you're looking at ~$8B and to get a majority stake need >$4B. Can Fairfax India be the main owner with partners, they still need ~$2B right?

Not an expert, but they could offer buyouts to partners over time. Anchorage listing would raise funds also. They could also sell certain holdings.  Share issuance is likely not on the table due to depressed stock price.

 

I would think they have a solid plan if they are bidding.  They are well respected and have been able to raise funds in the past.

 

They refused to comment specifically on the IDBI bid at the AGM, so of course, it's all guesses.

[This2ShallPass]

3 hours ago, ICUMD said:

Not an expert, but they could offer buyouts to partners over time. Anchorage listing would raise funds also. They could also sell certain holdings.  Share issuance is likely not on the table due to depressed stock price.

 

Looked at it some more - their shareholder's equity is $2.6B ($330M in cash and $500M in debt, not sure how much is drawn). The only way to be the main partner in this deal is to sell their other major investments (Sanmar and IIFL). 

 

I'm struggling to see how this makes any sense - why go after something so big? IDBI feels like more suited for parent Fairfax. Also, if the deal completes, the discount is never going to close - IDBI will be a much bigger % of Fairfax India value and not sure many will want to pay the performance fee..

 

[ICUMD]

55 minutes ago, This2ShallPass said:

 

Also, if the deal completes, the discount is never going to close - IDBI will be a much bigger % of Fairfax India value and not sure many will want to pay the performance fee..

 

I was reasoning the opposite, that the discount would close since IDBI is a listed company. By purchasing it, more of Fairfax India's holdings will be publicly valued and therefore we would get a stronger calculation on book value. 

 

I agree, raising so much money is not an easy feat for a small company.  OTOH, if parent Fairfax buys IDBI, what is the reason for even having Fairfax India?  

 

Maybe they should simply buyout Fairfax India and carry on with their India investments using deeper pockets.

 

 

[This2ShallPass]

2 hours ago, ICUMD said:

I was reasoning the opposite, that the discount would close since IDBI is a listed company.

Typically, closed end funds with publicly listed holding trade at a big discount. Look at Prosus, the discount didn't close for years until they decided to sell TenCent shares. There's no reason to pay the performance fees when the securities can be bought directly.

 

2 hours ago, ICUMD said:

OTOH, if parent Fairfax buys IDBI, what is the reason for even having Fairfax India?  

 

Fairfax India can have a good future making investments in the $200-500M range. They have a crown jewel asset in BIAL that will keep growing. I'm questioning their strategy of late, last year they bought two small investments for $80M..not big enough to move the needle and just a distraction. Now going the other way w IDBI..

[ICUMD]

11 hours ago, This2ShallPass said:

Fairfax India can have a good future making investments in the $200-500M range. They have a crown jewel asset in BIAL that will keep growing. I'm questioning their strategy of late, last year they bought two small investments for $80M..not big enough to move the needle and just a distraction. Now going the other way w IDBI..

I'd posit that small investments can sometimes present compounding opportunity.  Also, they have had a good record for choosing quality private Indian companies and realizing value.  

 

BIAL is definitely the key gem in FIH.

 

Agree that IDBI is an elephant that will be difficult to digest. It will definitely be a test of management to see how they navigate this.

[SafetyinNumbers]

Could they sell a stake in Anchorage to buy a stake in IDBI? 
 

I thought the plan was to IPO Anchorage to get a currency to buy other assets in India. Getting other outside investors to buy a private stake at a fair valuation does the same trick and maybe has the same impact as a catalyst on FIH shares.

[glider3834]

39 minutes ago, SafetyinNumbers said:

Could they sell a stake in Anchorage to buy a stake in IDBI? 
 

I thought the plan was to IPO Anchorage to get a currency to buy other assets in India. Getting other outside investors to buy a private stake at a fair valuation does the same trick and maybe has the same impact as a catalyst on FIH shares.

They recently announced looking to buy up to 10% of BIAL - so I think their strategy is to increase rather than reduce their BIAL ownership & then hopefully IPO at a more favourable valuation later on. 

 

[SafetyinNumbers]

6 hours ago, glider3834 said:

They recently announced looking to buy up to 10% of BIAL - so I think their strategy is to increase rather than reduce their BIAL ownership & then hopefully IPO at a more favourable valuation later on. 

 

Buying more BIAL to sell it through Anchorage is effectively a pass through especially if they can get a higher valuation on the flip. My point is selling it through the IPO or as a PIPE is kind of irrelevant if it helps them raise money at valuations closer to intrinsic value.

[glider3834]

BIAL passenger traffic 3.2M in Apr-23 vs 2.7M in 2019 (up 17%)

 

domestic 2.86M vs 2.32M in 2019 (up 23%)

international 0.35M vs 0.42M in 2019 (down 17%)

 

https://www.aai.aero/sites/default/files/traffic-news/Apr2k23Annex3.pdf

 

all-time record for BIAL in total passenger volume, but international still recovering post covid - running at 83% of 2019 levels

 

international passengers are higher spending (on shopping/duty free etc)  than domestic & they pay higher tariff rate, so if they can increase international passenger volume further with T2 up & running - this will be important from a margin perspective.

 

 

Edited May 23, 2023 by glider3834

[ICUMD]

Another block trade today of 335k shares, total trade of about 370k shares.

 

At least someone seems to be think this is undervalued.  Maybe FIH trying to close the gap to BV to strengthen its position? 

[Crip1]

1 hour ago, ICUMD said:

Another block trade today of 335k shares, total trade of about 370k shares.

 

At least someone seems to be think this is undervalued.  Maybe FIH trying to close the gap to BV to strengthen its position? 

Well, if someone is selling 335K shares, they think it's fairly valued (the yin and yang of investing).

 

In all seriousness...I'm more than happy to have either FIH or FFH take out more shares at this much of a discount.

 

-Crip

[ICUMD]

9 hours ago, Crip1 said:

Well, if someone is selling 335K shares, they think it's fairly valued (the yin and yang of investing).

 

In all seriousness...I'm more than happy to have either FIH or FFH take out more shares at this much of a discount.

 

-Crip

Of course.  But assuming the discount is real (and I personally do), ultimately these large block trades should translate into the gap closing.  They are happening frequently enough and in sizeable amounts relative to the shares outstanding.

 

Also safe to assume that if the buyer is Fairfax, they will not resell them at a discount on the market.

[gfp]

Yeah I was going to mention that there was a seller in addition to that buyer as well.  I do think it is likely that the block trades get taken by FIH itself.  I guess we'll find out later when they file on SEDI.  

 

There are probably investors looking to reduce their exposure to emerging markets and their currencies in this environment.  The Indian currency looks to want to go on another leg lower against the US dollar.  The central bank is intervening almost every day to supply dollars and prop up the INR.  But it is still weak, bumping along the line in the sand at 82.75.  It may be more of a general shortage of dollars in Asia than India-specific weakness.  We'll see.

[Haryana]

Beyond the numbers, a deeper look inside BIAL.

 

 

[Parsad]

I've had a tour of BIAL.  It is a beautiful airport.  

 

Vancouver's YVR airport is very well ranked for how welcoming and beautiful it is.  BIAL is much nicer and as functional. 

 

I haven't been there, but based on photographs and videos, it is probably closer to Singapore's Changi Airport than any conventional airport.

 

What's even better about the BIAL deal is that passenger volumes are on a crazy trajectory over the next 20 years and Fairfax has about 400 acres of development property around BIAL that it can develop.

 

With more and more companies moving their business to India from China, that bodes well for BIAL and India in general.

 

Cheers!

[lessthaniv]

Article on the airport expansion and coming renovations 

 

https://www.moneycontrol.com/news/business/announcements/fairfax-fully-committed-to-bengaluru-airport-investment-says-bial-ceo-hari-marar-10770571.html

[Haryana]

2 hours ago, lessthaniv said:

Article on the airport expansion and coming renovations 

 

https://www.moneycontrol.com/news/business/announcements/fairfax-fully-committed-to-bengaluru-airport-investment-says-bial-ceo-hari-marar-10770571.html

 

Also found this there (notice the continued growth in Cargo through the pandemic):

 

[ICUMD]

BIAL seems to be on track to see 40 million passengers. 2023/24 yr.

 

https://www.moneycontrol.com/news/business/mc-exclusive-bengaluru-airports-terminal-2-to-handle-all-international-flight-operations-from-september-1-10762941.html

[Saluki]

The airport is the center of gravity for the value of this stock, and airports are a toll road that lets you participate in the growth in the economy or tourism of a region. I was looking at CAAP recently and although it looks cheap, when I stepped back it had some issues.  I think part of the CAAO discount is that Argentina is a mess, and Brazil isn't exactly a success story either, so people are concerned about it even though a cheap currency makes Argentina more attractive to tourists and 85% of CAAP's revenue from the Buenos Aires airport is in dollars.  So if you think about the growth of latam vs asia, with CAAP you are getting a discounted dollar that may grow slowly, vs FFXDF where you are getting a discounted dollar that is growing rapidly.  If BIAL was a separate stock I think the discount to fair value would go away quickly. Part of me likes that it is wrapped up with other things because the value is hidden in plain sight and I can still add to it from time to time when it dips a bit and I don't have other ideas.  The airport is a long term compounder, so there is no hurry.  And if the price stays this price or lower for long enough, maybe we'll get another tender offer and buy back shares again and I get a bigger % ownership without opening my wallet.