Fairfax India new issue

[villainx]

On 9/16/2024 at 10:14 AM, TwoCitiesCapital said:

I don't think managing share price is a top management priority nor is it what I would want to be paying them for.

 

I feel the share price hamstrings them as they seek more opportunity.  It doesn't have to be at or above book value, but being close gives it option to sell shares if something big comes along.  At this point, one of the tools is just not available.

[TwoCitiesCapital]

2 hours ago, villainx said:

 

I feel the share price hamstrings them as they seek more opportunity.  It doesn't have to be at or above book value, but being close gives it option to sell shares if something big comes along.  At this point, one of the tools is just not available.

 

When Fairfax Financial was trading @ $300 USD in 2020 - was that a bad time to be buying because the low share price hamstrung their ability to issue shares? 

 

Or was it a great time to be buying because it was absurdly cheap and gave them the optionality to reduce share count at a fantastic discount? 

 

And if the latter - why are we treating this differently? 

[villainx]

I'll take a discount with good management and good assets any day.  I have a position.  

 

I'm just more thinking in terms of IDBI or other prospects.

[dartmonkey]

57 minutes ago, villainx said:

I'm just more thinking in terms of IDBI or other prospects.

The tool of issuing shares to acquire a company would be useful if the market price of FIH shares were higher, but in the case of IDBI, we are looking at an all cash acquisition in the ballpark of ~$10b, by a company that is worth $2b, so it is hard to imagine financing this with share issuance anyways. It's not even so obvious how Fairfax plans to do this, with its market cap of $29b, given the insurance regulators breathing down its neck.

 

Since it looks like Fairfax may be the frontrunner in this IDBI privatization (https://www.business-standard.com/companies/news/canada-based-firm-fairfax-offers-all-cash-deal-to-acquire-idbi-bank-124031800325_1.html), it will be interesting to see how they set up the the financing, but surely FIH by itself will not be able to get very far.

[gfp]

42 minutes ago, dartmonkey said:

The tool of issuing shares to acquire a company would be useful if the market price of FIH shares were higher, but in the case of IDBI, we are looking at an all cash acquisition in the ballpark of ~$10b, by a company that is worth $2b, so it is hard to imagine financing this with share issuance anyways. It's not even so obvious how Fairfax plans to do this, with its market cap of $29b, given the insurance regulators breathing down its neck.

 

Since it looks like Fairfax may be the frontrunner in this IDBI privatization (https://www.business-standard.com/companies/news/canada-based-firm-fairfax-offers-all-cash-deal-to-acquire-idbi-bank-124031800325_1.html), it will be interesting to see how they set up the the financing, but surely FIH by itself will not be able to get very far.

I don’t think the potential IDBI bank deal is for $10 billion USD. It is not the entire company that is being offered. 
 

good to have some friends with capital when a deal comes along. Hey prem, who ya got?

[dartmonkey]

4 hours ago, gfp said:

don’t think the potential IDBI bank deal is for $10 billion USD. It is not the entire company that is being offered. 

 

You are right:

 

« The government, which owns 45.48% in IDBI Bank, and state-owned Life Insurance Corp of India (LIFI.NS), opens new tab which holds 49.24%, together plan to sell 60.7% of the lender. The sale process was first announced in 2022. »

 

Still, even $6b is a big morcel for $2b FIH to swallow. 

 

[TwoCitiesCapital]

2 minutes ago, dartmonkey said:

 

 

You are right:

 

« The government, which owns 45.48% in IDBI Bank, and state-owned Life Insurance Corp of India (LIFI.NS), opens new tab which holds 49.24%, together plan to sell 60.7% of the lender. The sale process was first announced in 2022. »

 

Still, even $6b is a big morcel for $2b FIH to swallow. 

 

 

I think the hope was BIAL/anchorage IPO providing some liquidity to add to the existing cash held - we will see if it still will. I would expect bureaucratic delays may also impact the sale process as they did the IPO process. 

 

Some debt issuance, some equity partners like OMERS, and some additional cash on the balance sheet seems like they could get it done.

 

And while $2B may be the market cap - the current portfolio is closer to $3.6B with seemingly conservative marks for BIAL and limited borrowings at this time - so I think they could find a way to leverage the balance sheet a little and take a 50% chunk in this name similar to how BIAL has dominated the portfolio in the past. 

[hobbit]

3 hours ago, TwoCitiesCapital said:

 

I think the hope was BIAL/anchorage IPO providing some liquidity to add to the existing cash held - we will see if it still will. I would expect bureaucratic delays may also impact the sale process as they did the IPO process. 

 

Some debt issuance, some equity partners like OMERS, and some additional cash on the balance sheet seems like they could get it done.

 

And while $2B may be the market cap - the current portfolio is closer to $3.6B with seemingly conservative marks for BIAL and limited borrowings at this time - so I think they could find a way to leverage the balance sheet a little and take a 50% chunk in this name similar to how BIAL has dominated the portfolio in the past. 

For IDBI acquisition , Prem has sort of hinted that there could be a structure where FFH and others invests through FIH and FIH takes management and performance fees. This will not only offset the fees paid to FFH but also generate a new revenue stream for FIH. I think it's very likely that this happens. 

 

FIH will also contribute CSB bank and some cash to get some direct equity in IDBI as well. 

Edited September 19, 2024 by hobbit

[hobbit]

https://www.moneycontrol.com/news/business/rbi-lifts-restrictions-imposed-on-iifl-finances-gold-loan-business-12825738.html

 

Restrictions lifted on IIFL finance's gold business

Edited September 20, 2024 by hobbit

[villainx]

On 9/19/2024 at 12:25 AM, hobbit said:

FIH will also contribute CSB bank and some cash to get some direct equity in IDBI as well. 

 

That's where the ability to issue some FIH could have helped boost whatever % of direct equity they'll eventually get.  

 

I guess with continued execution,  FIH will get closer to BV and can do so for future deals.  

 

 

[dartmonkey]

On 9/19/2024 at 12:25 AM, hobbit said:

FIH will also contribute CSB bank and some cash to get some direct equity in IDBI as well. 

Have they talked about when they might reduce the CSB bank* stake? They were told in 2019 to commit to 5 years, and then to reduce from 51% to 15% before 12 years:

 

As part of the deal, the RBI has asked for a five-year lock-in for Fairfax and asked it to get down its holding in the bank to 15 per cent in 12 years, the sources said. https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-lets-watsas-fairfax-to-buy-51-per-cent-in-catholic-syrian-bank/articleshow/56260554.cms

 

That would be pretty good timing, actually. They were at 49.7% at 2023 year end, and announced a reduction to 40% in June of this year, " in compliance with the RBI’s dilution schedule." I presume the RBI will be giving them some guidance about how quickly they should sell the rest, if they acquire 60% of IDBI. That remaining 40% of CSB would be worth $269m now, and every little bit helps, if they're trying to get to $6b for the cash acquisition! 

 

===

 

*CSB is Catholic Syrian Bank, so CSB bank is redundant. I better get used to it, they clearly don't want us to remember what CSB stood for:  "We have rebranded ourselves in the year 2019 by changing our name as “CSB Bank Limited”, to address region and community related perceptional issues associated with our previous brand name."

 

More interesting Catholic Syrian history here: https://www.forbesindia.com/article/boardroom/catholic-syrian-gods-own-bank/12582/1

[gfp]

My understanding is if Fairfax entities "win" the deal for IDBI, CSB will have to be merged into IDBI with the IDBI "identity" being preserved.  

[hobbit]

48 minutes ago, gfp said:

My understanding is if Fairfax entities "win" the deal for IDBI, CSB will have to be merged into IDBI with the IDBI "identity" being preserved.  

 

yes that's correct and its likely that CSB will get a significant premium for the merger, probably in the range of 80-100%. If not for IDBI deal overhang , CSB would be trading at much higher prices. 

[TwoCitiesCapital]

54 minutes ago, hobbit said:

 

yes that's correct and its likely that CSB will get a significant premium for the merger, probably in the range of 80-100%. If not for IDBI deal overhang , CSB would be trading at much higher prices. 

 

Can you explain your reasoning here? I'm not following why investors would be discounting a stock that they expect to rise 80-100% in a likely merger?

 

I would think CSB would be trading HIGHER today due to the speculation for a deal? 

[hobbit]

1 hour ago, TwoCitiesCapital said:

 

Can you explain your reasoning here? I'm not following why investors would be discounting a stock that they expect to rise 80-100% in a likely merger?

 

I would think CSB would be trading HIGHER today due to the speculation for a deal? 

because of the uncertainty that whether it will be a merger or a forced sale at a discount to intrinsic value to a third party . Indian govt can easily make it contingent that FIH sells CSB before buying IDBI to expedite the transaction and not get it  stuck in too much red tape as a merger would entail. I do not think this scenario will play out but there is a non zero probability that it might. Market hates uncertainty. 

Edited September 20, 2024 by hobbit

[Junior R]

India indexs hit all time high today lol we are still waiting for FIH

[hardcorevalue]

43 minutes ago, Junior R said:

India indexs hit all time high today lol we are still waiting for FIH

 

It’s beyond frustrating. I’m getting clients angry at me for FIH instead of an index fund. We need that anchorage IPOl lol 

[Junior R]

5 minutes ago, hardcorevalue said:

 

It’s beyond frustrating. I’m getting clients angry at me for FIH instead of an index fund. We need that anchorage IPOl lol 

Lol inda etf 5 year is up over 70%...I think we are closer to IPO maybe sometime in 2025 or early 2026

[hobbit]

IIFL finance is contemplating a demerger of its subsidiaries in the next 18 months. IIFL home finance is likely to be more than the current market cap of the entire company.

 

https://www.moneycontrol.com/banking/may-list-iifl-home-finance-samasta-in-18-months-says-nirmal-jain-article-12827557.html

Edited September 24, 2024 by hobbit

[CharlieMunger]

Is Fairfax India still considered a PFIC for US tax purposes?

[Junior R]

seems like Canada and India back at the politics...Couple diplomats expelled on each side 

[Dinar]

On 9/30/2024 at 10:49 AM, CharlieMunger said:

Is Fairfax India still considered a PFIC for US tax purposes?

My accountant told me yes two months ago.  

[Viking]

3 hours ago, TB said:

Canada hints at sanctions against India; @Viking and other bulls, would this impact your investment thesis of FIH or FFH

 

https://www.msn.com/en-in/news/India/canada-hints-at-sanctions-against-india-over-nijjar-killing-foreign-minister-melanie-joly-says-everything-is-on-table/ar-AA1sjAHF

@TB As a general rule, i try and keep politics out of my investing framework, especially for those investments i view as medium to long term holdings. I am following what is going on. As with all my investments, I will follow the facts and fundamentals and make adjustments as needed. 

 

It is the same approach I am taking with the US election.
 

PS: I do not own any Fairfax India today (it is on my watchlist).

Edited October 15, 2024 by Viking

[Junior R]

Sold my FIH position today ...Will re enter after the Canada / India dispute is completed

[Xerxes]

The Canada-India dispute and comments on FIH, reminds of how Buffett in his letter kept reminding his BRK investors of the nature of insurance business and that when bad news come, is not the time to acknowledge that it is inherently risky. 
 

FIH invest fully in the Indian market all 100% of equity capital. One should always expect to encounter roadblocks, tailwinds and headwinds for a fast growing foreign market with massive potential, aspirations and many pitfall along the way to keep things interesting.