Fairfax India new issue

[dartmonkey]

13 hours ago, ICUMD said:

@dartmonkey

Thanks for writing this detailed explanation.

Your rationale and explanation make sense.

 

However, we can't be certain that is how they are actually calculating the fee, as there are slight discrepancies.

 

I wonder if it would be reasonable to submit your assumption to Fairfax India investor relations for confirmation or clarification.  Really, they should offer an appendix showing their calculation to the annual report, at the end of each 3 yr period.

That would be ideal, mabe I will send investor relations a note.

 

Thinking about this further, they note that the 5% annual hurdle, under which no performance fee applies, is not compounded. For a 3 year period, this makes very little difference: uncompounded 3*5%=15%, compounded 1.05^3-1=15.8%. But obviously, compounding over a longer period would make a difference. So when they look at the hurdle over 9 years, are they taking a 45% return from $9.62 (or from $10, maybe) as the hurdle? Over 9 years, 9*5%=45% but 1.05^9-1=55%, so it is starting to be important to know whether the hurdle is $14.50 or $15.50 - an extra 20c/share. And the difference will keep increasing, obviously, from one period to the next. In the very long term, it might mean that that 5% hurdle ends up being a lot less than 5%. For instance, for 2024 (year 10 of the plan), a 5% compounded hurdle would mean that they only take the fee on BV gains beyond $0.775/share (5% of $1.55), whereas an uncompounded 5% of $10 means they only take their fee above a 50c/share gain in BV  . And in 10 more years, a 5% gain on the original $10/share would end up being like a 1.5% hurdle...

 

[wondering]

I went to Bangalore for two weeks for work.  I was there 10 years ago.

• Terminal 2 is absolutely spectacular.  Not good, not good for by Indian standards. Burt good by world class standards!!!  A tourist destination in of itself.
• Also used Terminal 1.  They have streamlined the enter process since when I was visited 10 years ago.  Not perfect, but certainly better than it was before.
• My Indian colleagues said the Modi "rigged" the system ensuring that the BJP party will rule for the next +20 years.  
• Previous Indian political parties were not really align in the typical left/right model.  My Indian colleagues said now that has changed and BJP is the party of the right
• Please if anyone disagrees, please speak up.  I just reporting what my Indian friends told me.
• Nothing really more insightful to add - Bangalore is growing by leaps and bounds, traffic is worse, and it crazy that FIH is selling at 60% of book when there is such growth and growth potential.  The Airport will continue grow nicely.

[gfp]

8 hours ago, wondering said:

I went to Bangalore for two weeks for work.  I was there 10 years ago.

• Terminal 2 is absolutely spectacular.  Not good, not good for by Indian standards. Burt good by world class standards!!!  A tourist destination in of itself.
• Also used Terminal 1.  They have streamlined the enter process since when I was visited 10 years ago.  Not perfect, but certainly better than it was before.
• My Indian colleagues said the Modi "rigged" the system ensuring that the BJP party will rule for the next +20 years.  
• Previous Indian political parties were not really align in the typical left/right model.  My Indian colleagues said now that has changed and BJP is the party of the right
• Please if anyone disagrees, please speak up.  I just reporting what my Indian friends told me.
• Nothing really more insightful to add - Bangalore is growing by leaps and bounds, traffic is worse, and it crazy that FIH is selling at 60% of book when there is such growth and growth potential.  The Airport will continue grow nicely.

 

Thanks for the post wondering.  I am just a basic American know-nothing but I shared your post with my much smarter friend from Kerala and this was his reply:

------------------

I agree 100% about the standard of the airport. I had a chance to see it while I was there a year ago, and I was mindblown that this is an Indian airport. The new airports in Mumbai and Delhi are also apparently world-class, but I didn't see them, so i have to take the word of a 100mn people for it

BJP will rule for the next +20 years for sure. They have a lot going for them. They are nowhere as corrupt, they have an understanding of the majority of the population, especially the Hindi-speaking, north Indian belt. They have a cadre system tied to the Hindu society that trains them young, and they are very active in rural India, college unions, temples, etc. The only other party that has anything similar is the Communist Party which is only relevant in 2 states. They have proper organization and structure for absorbing anyone, including from your opponents, with clarity about their future, and a way up. They are very intentional about avoiding bureaucracy and nepotism, which is hard to avoid in a developing country like India. 
Indian political system has always been rigged, but that does not mean the elections. For the first 60 years after Independence, it was rigged in the favour of the Indian National Congress, and now BJP has "unrigged" the system through several acts like demonetization - which hampered the black money funding that INC used to benefit from. In the absence of an official lobbying system like in the US, all funding is under the table. In addition, political power used to be exerted by goondas or criminals. Even religious minority groups used to be funded in the name of secularism but were criminal organizations for INC's benefit. Those groups have been dismantled by several goonda acts. The Kashmir/ Pakistan border was a contentious issue with such groups standing in the way of any development/ changes. BJP enabled the police/ army to dismantle such groups, flirting with human rights issues. 
Previous Indian political parties used to play politics with religion, favoring one over another to create divisions and also use them for votes. BJP is the party of the right, and transparent about what they are. They maintain that India is a country of Hindus as the name suggests (Hindustan) and the others are welcome. Previously, we used to call the country secular, as in the constitution. But, I also think most of the population were never of this belief, nor will be. This was only an idea among socialist elites who ran the country till India opened up the economy in the 1990s. 
None of this is surprising including what his Indian colleagues said. BJP has a much smaller presence in South India where Bangalore is situated as well. We have 6 different states speaking 6 different languages, who think their cultures are way different than northern Indians'. As I said very different from the Hindi-speaking belt. But they don't form a majority. All these states have different parties ruling them, who can't get along with each other, and hence a fractured opposition. 
The main reason why the BJP will rule for another 20 years is the absence of leadership, strong opposition, or a semblance of a nationwide structure/ organization that can build something to beat them. Modi and the leadership of the BJP are quite selfless in prioritizing the party, Hinduism, and the country in that order. People respect that and the lack of corruption and nepotism which the INC was notorious for. INC leader - leader of the opposition is the grand grandson of the first Prime Minister. Every generation in that family has gone on to become the Prime Minister. Most people have had enough. 

-------------------

[ICUMD]

Modi commands a crowd today that no other leader can.  He's basically inspiring the country and millions of diaspora around the world to achieve what was previously impossible.  

 

Under his leadership, India is that economic snowball lifting people out of poverty and inspiring them on an individual level.

 

You don't have to understand what he says, you just have to listen and see the reaction of the crowds.

 

 

[hobbit]

terminal 2 NatGeo doc

 

 

[Xerxes]

Not exactly the same market, nor growth rate nor maturity. But there was a passage on The Economist few back years back about Gatwick airport as it changed hands between GIP and a French infrastructure investor. 

 

From 2018

 

2023:

 

“London Gatwick Airport has served 32.8 million passengers in the fiscal year ending 31 December 2022, achieving 70.4% of 2019 traffic. The passenger numbers increased by over 420%, from 6.3 million in 2021”

 

still at 70% of pre Covid traffic !

[hardcorevalue]

"Shares of Athens International Airport SA jumped 15% at the start of trading on the Athens Stock Exchange, in the country’s biggest initial public offering in more than two decades. 

 

The stock began trading at €9.40 a share, compared with the IPO price of €8.20, the high end of the initial range."

[jfan]

Perhaps this is already explained above in this thread. I was just trying to figure out the impact of the fees on their returns. Is my math off here?

 

 

If everything was market to market instead of market to private valuation, this should normally trade at a 23% discount + hold co discount (?20%) or 57% of NAV normally given the high fees.

 

So this implies that their true NAV needs to be at a minimum > $26/share to get a 10% return at a current market price of $15/share. 

 

To get a 15% return over 10 years, the market price needs to be at 30% of true NAV, or an intrinsic value of $50/share at current market prices.

[gfp]

Year end results press release:

https://www.fairfaxindia.ca/wp-content/uploads/02_February_15_2024-PRFIH-2023_Q4_Press_Release_Final.pdf

 

surprising:

"

• During the fourth quarter of 2023 and the first quarter of 2024 the company entered into agreements to sell its equity interest in NSE for gross proceeds of approximately $189 million (15.7 billion Indian rupees). The original cost of the company's investment in NSE was $26.8 million. On January 29, 2024 the company completed one of the sales and received gross proceeds of $132.3 million (11.0 billion Indian rupees). The remaining sales are subject to customary closing conditions and are expected to be completed in the first quarter of 2024."

Edited February 16, 2024 by gfp

[ICUMD]

Great results overall I think. 

 

They will have about 400M after the NSE sale, and about $288M after paying the performance fee in cash.  Should allow some interesting acquisitions.

 

Trading at about 0.65 BV.

 

Hopefully they do more buybacks or announce the Anchorage listing.  Bial is developing nicely, and is conservatively valued.

 

 

[giulio]

3 hours ago, gfp said:

surprising

I was a bit disappointed honestly. A part of me wished that they could hold on to it for a very long time. 

Anyone here share the sentiment?

Do you think they will treat the airport differently?

[longlake95]

2 minutes ago, giulio said:

I was a bit disappointed honestly. A part of me wished that they could hold on to it for a very long time. 

Anyone here share the sentiment?

Do you think they will treat the airport differently?

I'm in the same camp. Just OWN the hard-to-come-by assets, basically forever. Munger's "sit on your ass" philosophy. But, maybe there's more to the story....

 

Maybe a worthy question for Prem & Co at the FIH AGM...

[ICUMD]

NSE is a great asset no doubt.

 

OTOH, they need to be able to raise cash for acquisitions.  This can only happen through churning non core assets. Otherwise they have to use credit.

 

25M to 189M is a great capital gains.

 

Sell it and move on hopefully to something better!

[longlake95]

3 minutes ago, ICUMD said:

NSE is a great asset no doubt.

 

OTOH, they need to be able to raise cash for acquisitions.  This can only happen through churning non core assets. Otherwise they have to use credit.

 

25M to 189M is a great capital gains.

 

Sell it and move on hopefully to something better!

Prem has said publicly several times about deploying $5B in India in the next several years. With a notoriously bureaucratic government in India, maybe this sale is a "goodwill gesture" to show engagement. Allowing for bigger and better opportunities looking ahead. We'll see...

[ICUMD]

Great to see progress on this front.

BIAL becoming a southern hub for Air India should help ensure it's torrid growth in coming years.

[glider3834]

4 minutes ago, ICUMD said:

Great to see progress on this front.

BIAL becoming a southern hub for Air India should help ensure it's torrid growth in coming years.

reported last year, but Air India are ramping up their fleet too

https://www.reuters.com/business/aerospace-defense/air-india-firms-up-order-with-airbus-boeing-470-planes-2023-06-20/

[netcash1]

Zurich Insurance to buy 70% stake in Kotak arm upfront in amended deal

Reuters

February 23, 20249:38 AM PSTUpdated 4 days ago

 

 

[1/2]The logo of Zurich Insurance is seen at its headquarters in Zurich, Switzerland January 13, 2022. REUTERS/Arnd Wiegmann/File Photo Purchase Licensing Rights, opens new tab

BENGALURU, Feb 23 (Reuters) - Zurich Insurance Group (ZURN.S), opens new tab will buy a 70% stake in Kotak Mahindra Bank's (KTKM.NS), opens new tab general insurance arm by paying 55.60 billion rupees (nearly $671 million) upfront instead of staggering the purchase as planned last year, the Indian lender said on Friday.

Under the original deal, announced in November last year, Zurich was to buy a 51% stake in the Kotak unit for 40.51 billion rupees and an additional 19% holding within three years of the first purchase.

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The deal will be the largest investment by a global insurer in a non-life insurer in the Indian market.

The change in the deal's terms will not affect Kotak General's valuation, which was 79.43 billion rupees according to the filing from November 2023.

Kotak Mahindra Bank said the other terms of the transaction remain unchanged.

($1 = 82.8720 Indian rupees)

[gfp]

Thanks for posting @netcash1 - sounds like this deal would be more relevant to Fairfax Financial than to Fairfax India but an interesting data point nonetheless.   Seems like Fairfax should be allowed to take majority ownership of Digit.  I wonder what is holding it up behind the scenes.

[vinod1]

39 minutes ago, gfp said:

I wonder what is holding it up behind the scenes.

 

Somebody in the chain did not get paid. 

[Dipesh Patel]

Sebi Clears Rs 3,500-Crore IPO for Prem Watsa's Go Digit General Insurance
 

https://bnnbreaking.com/finance-nav/sebi-clears-rs-3500-crore-ipo-for-prem-watsas-go-digit-general-insurance

[hardcorevalue]

Fairfax India would be ripping on this but Digit is held at Fairfax Financial! 

[ICUMD]

Hopefully Anchorage gets the same approval.

Now Fairfax has a track record of obtaining IPO clearance in the local market.

[valueinvesting101]

RBI bans IIFL finance from gold loan business due to regulatory violations 

 

https://www.vccircle.com/rbibars-fairfax-backed-iifl-finance-from-sanctioning-disbursing-gold-loans

[gfp]

9 minutes ago, valueinvesting101 said:

RBI bans IIFL finance from gold loan business due to regulatory violations 

 

https://www.vccircle.com/rbibars-fairfax-backed-iifl-finance-from-sanctioning-disbursing-gold-loans

 

Like Deja Vu with IIFL securities getting in trouble last year.  Glad FIH has sold some IIFL finance shares.  We'll see if this one works out like the IIFL securities issues with a slap on the wrist.

[valueinvesting101]

This one seems more serious than IIFL securities. That one was imposed by SEBI which was related to past misconduct which was overturned on an appeal. 
 

RBI action letter is flagging deficiencies about the entire gold loan business workflow. Gold loan is nearly 30% of the loan book. 

 

”Certain material supervisory concerns were observed in the gold loan portfolio of the company, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default; breaches in Loan-to-Value ratio; significant disbursal and collection of loan amount in cash far in excess of the statutory limit; non-adherence to the standard auction process; and lack of transparency in charges being levied to customer accounts, etc. These practices, apart from being regulatory violations, also significantly and adversely impact the interest of the customers. Over the last few months, the RBI has been engaging with the senior management and the statutory auditors of the company on these deficiencies; however, no meaningful corrective action has been evidenced so far. This has necessitated the imposition of business restrictions with immediate effect, in the overall interest of customers.”

https://m.rbi.org.in//scripts/BS_PressReleaseDisplay.aspx?prid=57444

 

 

Edited March 4, 2024 by valueinvesting101