Fairfax India new issue

[giofranchi]

Assets

 

Cash of $40.4 million at March 31, 2015 included Indian rupees of $29.4 million (INR 1.8 billion), with the remainder denominated in U.S. dollars.

 

The company's investments totaled $976.8 million at March 31, 2015, and was comprised of U.S. treasury bills of $269.4 million, Indian corporate bonds of $633.5 million (INR 39.6 billion), Government of India bonds of $24.1 million (INR 1.5 billion) and investment funds of $49.8 million.

 

Interest receivable of $8.0 million at March 31, 2015 principally related to accrued interest on the company's bond portfolio.

 

Deferred income taxes of $1.8 million at March 31, 2015 primarily reflected operating losses for tax purposes that arose in the first quarter of 2015 because the company computes its corporate income tax liability in Canadian dollars pursuant to the requirements of Canadian taxation authorities, whereas the functional currency of the company is the U.S. dollar. The company has not recorded deferred tax assets of approximately $6.6 million primarily related to costs of the offerings.

 

Cheers,

 

Gio

First-Quarter-2015-Interim-Report.pdf

[Zorrofan]

Assets

 

Cash of $40.4 million at March 31, 2015 included Indian rupees of $29.4 million (INR 1.8 billion), with the remainder denominated in U.S. dollars.

 

The company's investments totaled $976.8 million at March 31, 2015, and was comprised of U.S. treasury bills of $269.4 million, Indian corporate bonds of $633.5 million (INR 39.6 billion), Government of India bonds of $24.1 million (INR 1.5 billion) and investment funds of $49.8 million.

 

Interest receivable of $8.0 million at March 31, 2015 principally related to accrued interest on the company's bond portfolio.

 

Deferred income taxes of $1.8 million at March 31, 2015 primarily reflected operating losses for tax purposes that arose in the first quarter of 2015 because the company computes its corporate income tax liability in Canadian dollars pursuant to the requirements of Canadian taxation authorities, whereas the functional currency of the company is the U.S. dollar. The company has not recorded deferred tax assets of approximately $6.6 million primarily related to costs of the offerings.

 

Cheers,

 

Gio

 

Thanks for posting this! I am excited to see what Prem can do with this as India may be the most exciting place to invest in the next few years.....

cheers

Zorro

[Guest glavacem]

If Fairfax expects to compound at 15% over the long term, why would one take the risk of India if Fairfax is expecting 15% after fees. Why not just hold Fairfax.

 

Am I misunderstanding something on this?

 

Thanks guys

[giofranchi]

If Fairfax expects to compound at 15% over the long term, why would one take the risk of India if Fairfax is expecting 15% after fees. Why not just hold Fairfax.

 

The way I see it Watsa has built FFH to thrive in an environment in which we will have both very low stock prices and very low bond yields. That’s a very rare occurrence, and the last two times it happened were in the US during the ‘30s and in Japan during the ‘90s. Otherwise, like Buffett and Tepper say, very low bond yields justify higher stock prices.

 

If the environment Watsa is preparing for never materializes, FFH won’t compound at 15% annual for many years to come… Its results might be much lower than that!

 

So what would I do?

 

1) If you are sure that the environment Watsa is preparing for will never materialize, I would invest only in FIH.

2) If you are sure the environment Watsa is preparing for will materialize, I would invest only in FFH.

3) If you have no certainties regarding the environment Watsa is preparing for, like me, I would invest both in FFH and in FIH.

 

Cheers,

 

Gio

 

[KinAlberta]

Does FFH need protracted conditions for its bets to begin to pay off? (As in the 1930s or Japan) 

 

Couldn't a recession and/or a major market decline possibly price in to the market the necessary "payoff" expectations, which of course could completely reverse six months later sending the world the opposite direction?   

[Guest glavacem]

Thanks for the response Gio. Your answer helped clarify some things for me.....:)

[giofranchi]

Thanks for the response Gio. Your answer helped clarify some things for me.....:)

 

My pleasure! :)

 

Cheers,

 

Gio

[giofranchi]

http://blogs.wsj.com/indiarealtime/2015/05/15/11-numbers-showing-india-has-a-long-way-to-go-to-become-the-next-china/

 

 

Gio

[SoonParted]

This is a question for American investors in FIH.  It was noted earlier in this thread that FIH could well be deemed a PFIC by the IRS.  Jurgis commented, "It likely will be [a PFIC] unless it acquires controlled operating businesses fast."  So I'm wondering how others are dealing with this issue.  Possible strategies:

 

(1) Ignore the risk and hope the IRS either doesn't notice or decides it's not a PFIC.  Might work if you're a small shareholder.  Huge losses if it doesn't work.

 

(2) Try to figure out the PFIC rules, and go by them.  My impression is that the taxes one would then owe would make the investment much less attractive--I think essentially, all unrealized gains are taxed like ordinary income each year.  Also it's unclear to me what information is needed for tax filing, and how to get it if the company doesn't help out. 

 

I've only owned one PFIC, and the (Canadian) company provided Americans a sheet each year with the necessary information to deal with PFIC filing. 

 

Useful link:

 

https://ustaxcompliance.wordpress.com/tax-triggers/a-pfic-primer/

[KinAlberta]

http://blogs.wsj.com/indiarealtime/2015/05/15/11-numbers-showing-india-has-a-long-way-to-go-to-become-the-next-china/

 

 

Gio

 

Now that is an interesting article! It says more about the author than the subject. It's like the question:

 

- - - - - - - - - - - - - - - - -  "Is the cup half empty or half full?"  - - - - - - - - - - - - - - - - -  with "empty" representing pessimism and "full" representing optimism.

 

 

Well, all those hypothetical cups are likely full: half air and half water. And since it's a hypothetical question, and we are "value investors", let us reflect on the fact that you can live a long time without water but only minutes without air. :-) So, again, as value investors all know, it's the hidden, invisible or overlooked quantities that can in the right circumstances prove far more valuable than the obvious. Those people seeing and walking away from "half empty" cups may someday be gasping breaths of disbelief in their missed opportunities.

 

People hearing the half full half empty question should maybe put more thought into the original premise of the inventor than into thought about the question itself, and people reading the article above need to think more about the original premise of the author of this article too.  That author needs to realize that India's cup of today, like China's in the early 1980s, is finally being seen as full, and not just perceived as half empty.

[gfp]

I didn't see any mention of an IRA account in your question.  If you are US-based and have some of your investable capital in IRAs, that would be the place to park a potential PFIC.  I would not ignore it and hope the IRS doesn't notice.  I put Pershing Square Holdings, Kennedy Wilson Europe and Fairfax India in IRA accounts with no issues.

 

This is a question for American investors in FIH.  It was noted earlier in this thread that FIH could well be deemed a PFIC by the IRS.  Jurgis commented, "It likely will be [a PFIC] unless it acquires controlled operating businesses fast."  So I'm wondering how others are dealing with this issue.  Possible strategies:

 

(1) Ignore the risk and hope the IRS either doesn't notice or decides it's not a PFIC.  Might work if you're a small shareholder.  Huge losses if it doesn't work.

 

(2) Try to figure out the PFIC rules, and go by them.  My impression is that the taxes one would then owe would make the investment much less attractive--I think essentially, all unrealized gains are taxed like ordinary income each year.  Also it's unclear to me what information is needed for tax filing, and how to get it if the company doesn't help out. 

 

I've only owned one PFIC, and the (Canadian) company provided Americans a sheet each year with the necessary information to deal with PFIC filing. 

 

Useful link:

 

https://ustaxcompliance.wordpress.com/tax-triggers/a-pfic-primer/

[Jurgis]

This is a question for American investors in FIH. 

 

SoonParted, you really have to ask FIH directly. Let us know if you get a response. :)

[SoonParted]

Thanks, globalfinancepartners.  The IRS seems to have changed the rules recently on PFIC's in IRA's so that you don't have to file form 8621 and so on, so that helps a lot.  The downside is that in an IRA, if there's foreign tax paid (taken out of a dividend), then you can't get a credit for it.

[giofranchi]

http://www.theguardian.com/news/2015/may/27/why-india-is-captured-by-carbon?

 

 

Gio

[jimjam]

Karthikpm: There does now appear to be a US based OTC ticker for Fairfax India:

 

  http://www.morningstar.com/stocks/PINX/FFXDF/quote.html

 

I wonder if this is an ADR?

 

Interactive Brokers doesn't seem to list FFXDF though, only FIH.U.

 

Theoretically, does anyone know if buying an OTC stock instead of a Canadian one might be a way of getting around the potential FPIC tax problem referred to earlier in this thread for US investors?

 

Warmly,

jimjam

[Jurgis]

if buying an OTC stock instead of a Canadian one might be a way of getting around the potential FPIC tax problem referred to earlier in this thread for US investors?

 

No.

[Txvestor]

Probably a worthy read for those of you invested in this, Watsa talks about his long view and shares some general themes.

 

http://m.economictimes.com/opinion/interviews/corruption-at-highest-levels-in-india-has-disappeared-says-prem-watsa/articleshow/47535814.cms

[Jurgis]

Color me skeptical about:

 

Corruption at India's top level has "disappeared" in the year

 

I don't know India. But I know corrupt societies. And corruption does not disappear in a year even with best people working for change. Maybe Watsa is just promoting a positive message.

 

I hope I am wrong and he's right. That would be great. :)

[Txvestor]

I think he is referring to the top level ie PM, Cabinet, and so on. Of course the habits of bureaucrats and the sclerotic effects of corruption on society will take a lot longer to improve but any change has to start somewhere. One thing is certain for me. India is a massive market, with a young population, with very entrepreneurial people, decent and nurturable links to the global economy, who have elected a PM who has little personally to gain and everything to lose from any whiff of corruption coming from anywhere close to him.

To be sure the obstacles are very high. Time will tell how much progress can be made. I suspect India can generate 6-7% growth over the next decade and that might be far better than most economies.

I believe Prem is in India to look at a few opportunities. He said he expects to complete one before year end. I doubt he would say that unless he had a couple of good leads. Thus far the acquisitions they have done there via Thomas Cook have been brilliant. 

[giofranchi]

I think he is referring to the top level ie PM, Cabinet, and so on. Of course the habits of bureaucrats and the sclerotic effects of corruption on society will take a lot longer to improve but any change has to start somewhere. One thing is certain for me. India is a massive market, with a young population, with very entrepreneurial people, decent and nurturable links to the global economy, who have elected a PM who has little personally to gain and everything to lose from any whiff of corruption coming from anywhere close to him.

To be sure the obstacles are very high. Time will tell how much progress can be made. I suspect India can generate 6-7% growth over the next decade and that might be far better than most economies.

I believe Prem is in India to look at a few opportunities. He said he expects to complete one before year end. I doubt he would say that unless he had a couple of good leads. Thus far the acquisitions they have done there via Thomas Cook have been brilliant.

 

+1! :)

 

Gio

[wisdom]

http://finance.yahoo.com/news/fairfaxs-watsa-buy-indian-logistics-035558426.html

[giofranchi]

http://finance.yahoo.com/news/fairfaxs-watsa-buy-indian-logistics-035558426.html

 

Thank you very much! :)

 

Gio

[SoonParted]

btw, is FIH's hurdle hard or soft?

 

And is the 5% hurdle in growth of NAV in rupees or dollars?

 

Has anyone been able to find out about the currency used when calculating NAV growth?  Seems like a make-or-break question.  I asked Investor Relations recently, they didn't have an answer(!), said they'd get back to me. 

[giofranchi]

btw, is FIH's hurdle hard or soft?

 

And is the 5% hurdle in growth of NAV in rupees or dollars?

 

Has anyone been able to find out about the currency used when calculating NAV growth?  Seems like a make-or-break question.  I asked Investor Relations recently, they didn't have an answer(!), said they'd get back to me.

 

In USD, of course! FIH reports results in USD!

 

Watsa has commented he doesn’t think this will be a problem, because he sees the rupee appreciate against the USD from now on… Despite, or perhaps in part because of, what has happened during the last few years.

 

Gio

 

[bearprowler6]

http://www.fairfaxindia.ca/news/press-releases/press-release-details/2015/Offer-to-Acquire-26-of-IIFL-Holdings-Limited/default.aspx